Feathers Fly as Pilgrim's Pride Bids for Gold Kist

Pligrim's CEO says there is "no alternative" but to take its offer directly to its poultry rival's shareholders

Call it a high-stakes game of chicken. Poultry processor Pilgrim's Pride (PPC) announced plans on Sept. 28 to make a hostile bid for its rival Gold Kist (GKIS) for around $1 billion plus the assumption of $144 million in Gold Kist debt.

The Pittsburg (Tex.)-based chicken producer is starting a tender offer to buy all of Gold Kist's stock for $20 per share. The offer, which expires Friday, October 27, 2006 unless extended, is financed with credit from Lehman Brothers Inc. The deal will be subject to customary regulatory approvals.

The bid comes after Pilgrim's Pride on Aug. 18 announced an offer to buy Gold Kist, which did not result in an agreement. Pilgrim's Pride Board Chairman Lonnie "Bo" Pilgrim sent a public letter on Sept. 28 to Gold Kist's board, explaining that the company hasn't provided information requested and numerous discussions have failed. "Given this state of affairs, you leave us no alternative but to take our offer directly to Gold Kist shareholders," Chairman Pilgrim wrote in the letter.

He added that Gold Kist's stock price has averaged about 50% of Pilgrim's since its initial public offering in 2004. Applying this average to Gold Kist's closing stock price on August 18, 2006, which was the last day of trading before Pilgrim's Pride publicly told Gold Kist's board about its offer, Pilgrim's takeover deal terms represent a 40% premium to Gold Kist's value. If you simply apply Gold Kist's closing stock price on Aug. 18, the terms represent a 55% premium.

After the news on Sept. 28 Pilgrim's Pride stock sank 0.3% to $28.13 per share in early trading on the New York Stock Exchange. Gold Kist dropped 0.8% to $20.77 per share on the Nasdaq market.

"We believe that by giving the Gold Kist shareholders a chance to decide for themselves, they will find our $20 per share cash offer attractive and will seize the opportunity," said said O.B. Goolsby, Jr., president and chief executive officer of Pilgrim's Pride, in a press release.

Shareholders can soon show Goolsby whether they agree on that one.

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