Is Swift going public?
Sharon Dunn, (Bio) email@example.com
February 23, 2006
To IPO or not to IPO.
For months, speculation about Swift & Co. going public has been the talk of the business community. The speculation has surfaced with each bit of news, from its new CEO last summer to the recently announced layoffs in April.
The changes seem to logically steer the company in the direction of a public offering, especially given its ownership since 2002, a private equity firm that is in the business of making a profit off its investments.
Naturally, people have wondered if the IPO question will become a reality. The more likely question would be, “When?”
While company officials won’t discuss any timelines, those on the outside say an IPO most likely won’t be anytime soon, if anything because of the poor market conditions dictated by a ban on U.S. beef in Japan and other Asian markets. For Swift, that’s meant sagging beef sales for two years and a downturn in overall earnings for the first half of its fiscal 2006 year.
“They’re caught in the middle of what has been a difficult couple of years,” said Lee Korins, a Monfort executive professor of finance for the Monfort College of Business at the University of Northern Colorado. “I think they’re trying to show some good earnings results, maybe to go public, but I don’t know really how much of a premium meatpacking stocks would command in the market at the present time.”
Put simply, earnings need to start picking up for Swift, which just announced a second round of layoffs to come in April.
“It’s always better for a company to become public if they have a growing and vibrant business,” said David Menlow, president of IPO Financial.com of New Jersey, who analyzes IPOs.
Hicks, Muse, Tate & Furst, a private equity firm from Dallas, bought Swift in 2002, coughing up $1.4 billion with Booth Creek Management Inc. of Vail to buy it from ConAgra. Such firms typically will move private companies into an IPO after building them up to get a return on their investment quickly, some say 12-36 months. In Swift’s case, that 36 months ended in September 2005.
“It’s a natural evolution of a private equity firm like Hicks Muse. That’s why they’re in business,” said Swift spokesman Sean McHugh, who would only talk in generalities. “For any private equity firm out there, they need to find a way to realize a return on their investment.”
Enter Sam Rovit to start off the company’s fiscal year for 2006, which began in the summer of 2005. Rovit, who specialized in mergers and acquisitions, was immediately seen as the IPO man.
“He may in fact be in there to try to take over complementary businesses,” Menlow countered.
McHugh said Rovit’s charge has been apparent from the beginning. “First our priority is to drive and improve our current business and as appropriate, we’d look at acquisition opportunities.”
The company has spent the last year trying to rebuild by introducing more supermarket-ready products into its mix, thus restoring any losses sustained by a sagging export market. It’s going to take some time, however.
“It would seem that this might still be one of the worst times to put the company up for sale,” said Steve Kay, publisher of Cattle Buyers Weekly, which covers the global meatpacking industry. “They’re still trying to do whatever it takes to operate more efficiently and make some money.”
The recent layoff announcement was couched in the idea that the company will improve its value-added business still.
“Irrespective of an offering or not, we and the whole industry are under immense pressure to improve base operations,” McHugh said.
Then, any good times could usher in the “impending” IPO, most agree.
“If the market straightens out and becomes more dependable and their earnings improve, there’s no question that they’re probably thinking of (an IPO) because they’re owned by some folks who’d like to see them as a public company,” Korins said.
Going public probably wouldn’t change things too much, other than Swift would have to answer to its shareholders, McHugh said.
“We’re already behaving like a public company in terms of disclosures and financial reporting,” McHugh said. “Everyone wants to know what the next step is. From where I sit today, it’s hard to say when and what that will be.”