Lakeside Sells to Nilsson Bros. For $107M

[smcgrath76]

It is interesting. The Nilsson chunk of the $356 million will certainly be a start on a downpayment.
The price of live cattle is based on US beef - processing cost/margin - basis - countervail (if the AB gov program is countervailed). To the guy selling weaned calves it further includes - cost of gain * x pounds of gain.
While I don't think that nilsson's can directly change the fundamentals of beef supply and demand they are in a unique position of controlling nearly all of the sales facilities in western canada, having access to a large mandatory age verified pool of cattle, and the potential to be operating in a countervailed industry, where they can buy live cattle at countervailed price and sell beef at retail (domestically), while recieving government money for the cows they control and the cattle they have on feed.
I don't disagree with FS that they have seen a meteoric growth in their business. Whether it is a Canadian success story or a success for Canada is a matter of opinion.
Interesting days ahead for sure.

[farmers_son]

Indeed, there was a good deal of raping and pillaging going on in 2003-2004, which was the reason for the previous government's Commons Committee wanting to look into the packers books. But this is 2008. Live cattle access to the North American market has resumed and the short but sweet period of easy packer profits at our expense had come to a end several years ago. I do not think anyone believes the packers are making a killing today. That is clearly indicated by the selling price.

[grassfarmer]

"I do not think anyone believes the packers are making a killing today. That is clearly indicated by the selling price."
Well, yes and no F_S the price may be relatively low but on the other hand Nilssons "meteoric growth" and desire to expand their processing capacity indicates there is still an expectation of profitability - why else would they undertake this purchase?
I guess the money for plant automation in the AMLS can't have been that great afterall if Tyson aren't hanging around to collect it.

Sean, "IF the AB gov program is countervailed" your negative comments are based on the assumption that it will be countervailed. Why? it says in the strategy "Several principles guided the development of this plan" one of which was "Minimize the risk of countervail and WTO actions" Do you have evidence that it will be countervailed ? - the AB Government thinks they have designed something that won't be.

As far as anti-competition petitions go I wouldn't get your hopes up Rod.
I was informed today by someone in the know that "In practice, there are no anti-competition laws in Canada."

[ivbinconned]

It can be best described as CORPORATE COMMUNISM because CORPORATIONS own everything - including ALL governments - and run them with COMMUNIST tactics.

Why would an NDPer be afraid...this is what he advocates for the political realm??

In CORPORATE COMMUNISM there are no boundaries. Same for the political arena.

In 1984 Orwell called the system OLIGARCHICAL COLLECTIVISM, because the oligarchs (another name for CEOs) collectively owned everything. He said: "The oligarchs are the lords of the earth. Everything exists for their benefit. The ordinary people, the workers - are their slaves."

I find it puzzling why some who would embrace every left leaning party that comes along seem so perplexed by "vertical integration" or complete control of an industry by any entity!

Anti-combines legislation! Dianne Frances's book twenty years ago described how the corporate world runs Canada.

[wd40]

A little packer heads up. When we were working on the business plan for the Lethbridge (2000 hd/day) producer owned packing plant we hired X-CEO's and X-COO's (retired)from IBP and Cargil and National beef. Here is what they individually said.
1) While one of the men had to defend the books of IBP for an 8 year window of time many years ago because the USDA accused them of control. The showed one (1) RED month with a net profit of 33% after tax.
2) Another said Cargil would not build any major facility without assurance that they could capitalize it out in 3 years.
3) Another said that the common talk around board room table was "well we've kept the beef business down on it's knees long enough, it's time to give them some air."
4) Another said "we don't need to own cattle all the time, just enough cattle at the right time".

Every moment their awake they are thinking "how can we control the market.

So every time a packer opens his mouth just call him a lier.


You don't have to barry your head in the sand all the way to you'r shoulders.

[Willowcreek]

I don't know what it is in Canada- but in the States as of June 25, 2008

The latest beef packer margin index from HedgersEdge.com is at a plus $78.35 per head, compared with the previous index of $68.45.

Not bad money for owning them for only a few hours -Eh!!!!!!!!

[wd40]

Right WC - someone said several years ago that it takes
$3000 capital/hd. to run a cow
$300 capital/hd. feedlot capacity
$30 capacity/hd for a packer

hmmm

[grassfarmer]

Interesting - with margins at $80 a head in the US a plant the size of Lakeside even running at 60% capacity would net $61 million profit annually.
That would be some return on a $100 million plant if you could turn it around.
Hmmm no money in the packing sector eh?

I don't understand how having overcapacity in the packing sector causes the huge financial losses claimed. The big two in Canada had their plants expanded for them using taxpayer money in 2003/4, the plants are not bidding up live cattle prices to keep their plants full so where are the losses incurred? They can't find enough staff so they don't have workers standing idle? This part is a mystery to me, I suspect it is creative accounting.

[farmers_son]

Grassfarmer: My Dad pointed out to me that sometimes when we saw someone who appeared to be doing really well, buying new machinery, building new buildings etc. what we saw was not how much they had made but how much they had borrowed. But I presume Nilsson Bros. must be making money or else they would not be able to borrow more or attract new venture capital. Nilsson Bros. is a private corporation and they do not publish their financial statements.

See:
http://ir.tyson.com/phoenix.zhtml?c=65476&p=irol-newsArticle&ID=1169591&highlight=

According to this report from Tyson Foods Inc., Nilsson Bros. Inc. will pay $57 million at closing with Tyson giving Nilsson time to pay the rest, $50 million paid over five years with interest, no mention of how much interest. That is really a very interesting arrangement and only time will tell if Nilsson has the depth to pull this off. Without question, Tyson will have some sort of security on the deal. Tyson may get the plant back in a few short years and keep the $57 million down payment to boot. I would have to think this purchase, although a real opportunity, involved considerable risk for Nilsson Bros. Growing too fast can easily sink an otherwise viable corporation.

Regarding packer profits…. See:
http://ir.tyson.com/phoenix.zhtml?c=65476&p=irol-newsArticle&ID=1135451&highlight=

Tyson lost $96 Million on $6.1 Billion beef segment sales in the first half of this fiscal year. “Operating results for the second quarter and six months of fiscal 2008 were negatively impacted by higher operating costs and losses at our Lakeside operation in Canada.” One can only wonder how much of the $96 million loss was attributable to Lakeside.

[smcgrath76]

GF - I said IF the AMLS is countervailed. I did not say when. I am trying to figure out and cover all the possibilities I can think of in my forward planning.
I am considering the potential that the Nilsson purchase of Brooks may enhance my prices as much as I am considering that it may decrease them. I am also considering the effect that new ownership may have on desired carcass characteristics of the cattle they harvest at Brooks.
It is just hard to navigate when the ground rules keep fundamentally changing on a daily basis. I always base my optimism on a skeptical critique of the current situation.
I can't change my opinion of the AMLS program based on the facts I have available to date, but the jury is still out for me on the Nilsson purchase (guess I am a blasphemer for saying so).
I am working on some solutions that may take our operation out of that issue completely anyway.

[DiamondSCattleCo]

"This sale does not involve a change in packing
plant capacity in this country. And as long as our
live cattle prices are determined in the U.S. minus a
basis and we have live cattle access to the U.S. I
would not expect a noticeable change in the price
of our cattle. "

I've long seen this arguement that number of chains
determines demand.

Its a load of bs spread by packer lovers with
absolutely ZERO understanding of economic
behaviour. While chains has an effect on demand,
number of BIDDERS in the system is far more
important.

What if Cargill sells out to XL next? Doesn't change
the number of chains in the country. Does this
mean the prices will stay the same?

FS, our prices echo US levels only because we have
the same large companies bidding here as they
have in the US. Now one of those companies is
exitting the market and you expect their US side
purchases will make up for the dropped demand?

What a load of crap.

Let me see if I can explain this to you: Tyson is
exitting the Canadian market to CONCENTRATE ON
THEIR SA MARKET! Perhaps we won't feel the sting
tomorrow or the day after, but we will soon.

This sale needs to be blocked, and blocked
immediately until another Canadian concern can
purchase it. Since we know those useless effers in
the ABP/CCA probably won't do anything about it,
we'll need to take it to our elected reps by
ourselves.

Rod

[farmers_son]

I think we would be better off to lobby our Canadian government regarding Canada’s access to the U.S. market when COOL comes into effect October 1, the day following the close of this deal.

For the most part, business is allowed to operate in Canada on a free basis and, for the most part, we would not want it any other way. I think is very unlikely that the Federal Government will do anything to block this sale. Last April, in what was called an unprecedented move, Canada blocked the sale of MacDonald Dettwiler and Associates to Alliant Techsystems, a U.S. firm. That involved the sale of crucial Canadian technology to the U.S. and would have ended Canada’s space program. This is a sale of Lakeside by a U.S. firm to a Canadian firm, how are you going to stop that?

Given the magnitude of the losses at the Lakeside plant, you might want to consider that we are very fortunate that anyone wanted to buy the plant and that it was not just shut down, which I believe had to be an option. You would have to think that there were not many buyers for this plant or Tyson would not have sold it for $57 Million down with 5 years to pay the balance of $50 million. I have mentioned in these threads before that we could very well lose one of our two major packing plants. Well the plant remains, for now, and Tyson will still be bidding on our live cattle from its U.S. operations in Pasco Washington.

Bottom line, as long as we continue to have open access to the U.S. live cattle market, it will not make much difference if Tyson or XL owns Lakeside. Like I said Tyson can bid on our calves from Pasco as well as from Brooks. I think what was most important was the plant remains open. And for that matter if, for some reason COOL or something else, access for our live cattle to the U.S. is restricted again like in May 2003 it will not make one bit of difference who owns Lakeside either. I can guarantee you if that happens we will not like the price we will get for our live cattle.