Pro-Fac Cooperative Inc. has begun distributing a portion of the more than $230 million payout it received from the sale of Birds Eye Foods Inc. and is beginning steps to disband the cooperative by the end of 2012.
CEO Stephen Wright said this week that the agricultural co-op has redeemed all its preferred stock and caught up on dividend payments through March 15, when shares were no longer publicly traded. Pro-Fac is redeeming its common stock and providing additional payments to members, based on how much business they have done with Birds Eye.In late December, Pro-Fac received $238.4 million from Pinnacle Foods Group LLC as part of the sale of Birds Eye.
Pinnacle Foods, a manufacturer of brands including Duncan Hines, Vlasic and Mrs. Butterworth’s, said in November that it had signed an agreement to purchase Birds Eye for some $1.3 billion. The deal closed Dec. 23. Pro-Fac had a 40 percent ownership in Birds Eye Holdings LLC.
"A lot of equity is going back into the hands of the producers," Wright said.
He recently wrapped up a round of annual meetings with Pro-Fac members and said much of the discussions centered on the Birds Eye sale.
"The growers are euphoric about the results," Wright said, "and surprised it has been such a terrific return on investment in Birds Eye."
There is still more than $100 million available from the Birds Eye sale, and Pro-Fac leaders are determining how to distribute the additional funds, Wright said.
At its January meeting, Pro-Fac’s board of directors passed a resolution to create a plan of liquidation for the cooperative. It was approved by the membership. The cooperative is expected to be dissolved in December 2012, he said.
Pro-Fac, which is based in Fairport, has a staff of four. The agricultural cooperative markets crops grown by its members, including fruits (cherries, apples, blueberries and peaches), vegetables (snap beans, dry beans, beets, peas, sweet corn, carrots, squash, asparagus and potatoes) and popcorn.
The co-op has nearly 500 growers. The majority of members are in Western New York and Michigan, but others are in Pennsylvania, Florida, Nebraska, Illinois, Oregon and Washington.
Pro-Fac members supply mostly fruit to Birds Eye from growers in Michigan and New York. The co-op also provides potatoes grown in Pennsylvania and Washington and dry beans from Michigan and the Northwest.
Wright said the co-op’s greatest business comes from Allens Inc., previously known as Allen Canning Co., the Arkansas company that bought some Birds Eye plants in 2006 when the company sold its non-branded food business. That segment included plants in Brockport, Bergen and Oakfield, where 366 people were employed.
Pro-Fac also has smaller contracts, including one with Gilster-Mary Lee Corp., a private-label food manufacturer in Illinois, to supply popcorn. Another is with Nell’s Foods, a fruit cooperative in Pennsylvania. The bulk of the contracts expire at the end of 2011.
The current market value of crops delivered by Pro-Fac to all of its customers was roughly $100.3 million for the fiscal year that ended June 27, 2009, and $76.9 million for the year ending June 28, 2008, filings with the Securities and Exchange Commission show.
Pro-Fac’s largest customers have been Allens and Birds Eye. Of the crops purchased by Pro-Fac from its members, 51 percent was sold to Allens in fiscal 2009 and 48 percent in 2008.
The local Allens plants are still operating, and Pro-Fac continues to supply them.
For the same years, some 23 percent and 29 percent, respectively, of the crops purchased by Pro-Fac from its members were sold to Birds Eye, SEC filings show.
On Feb. 5, Pro-Fac reported second-quarter net income of $238.1 million. The profit was due primarily to the $238.4 million distribution it received from Birds Eye Holdings.
Pro-Fac has received $10 million annually from Birds Eye from a termination agreement made when Pro-Fac sold 56 percent of Birds Eye to Vestar for $175 million in 2002. The termination agreement ended a 1994 marketing and facilitation contract between Pro-Fac and Birds Eye.
Pro-Fac will continue to distribute the money from the Birds Eye sale, Wright said, and will help members connect with new customers, which could include individual agreements with companies or a collaborative effort, possibly even another cooperative.
George Conboy, president of Brighton Securities Corp., said the deal with Pinnacle Foods was a good one for people who owned shares of Pro-Fac’s preferred stock because it meant the shares could be redeemed. Shareholders may have been concerned about that, given that the stock has been volatile over the past few years and Pro-Fac at one point deferred paying a dividend.
Conboy said that although the stock bounced back after falling a few years ago, ambivalence remained in the investment community about whether Pro-Fac would make good on its shares.
"The sale (to Pinnacle) answered those questions," Conboy said.
While the sale to Pinnacle brought financial rewards to Pro-Fac members, Conboy said it also means that area farmers might have a less secure market for their products.
"I’d imagine it could be a big cloud over many Upstate New York farmers," he said.
Dean Norton, president of the New York State Farm Bureau, said most of the growers he has spoken with about the sale are happy with it, especially because of the payouts, but some are concerned about what will happen with future supply agreements.
"A concern is making sure there is a market for our growers," Norton said.
Robert DeBadts, owner of Lake Breeze Fruit Farms in Sodus and a member of Pro-Fac’s board of directors, expects supply agreements to continue with Pro-Fac’s customers, even after the co-op ceases to exist.
"Nothing is certain, but our relationships (with processors) have been good and I’d imagine that would continue," DeBadts said.
DeBadts said he is happy with the Birds Eye sale and its impact on the co-op.
"It was better than our wildest dreams," he said.
Wright said Pro-Fac has an agreement that allows the co-op members to continue providing products to Birds Eye through 2010. Next year, there is a stipulation that Pinnacle Foods could end the agreement.
Wright said the co-op has not had discussions with Pinnacle regarding supplier agreements yet and is letting the company first get its arms around Birds Eye.
This month Pinnacle filed notice with the state of New York that it plans to close its operation here by July 15, laying off its 205 workers. The company plans to merge the local facility into Pinnacle’s New Jersey location.
The former Birds Eye headquarters is in the Linden Oaks Office Park in Penfield. The business employs 1,700 people at locations across the United States and has annual sales of more than $930 million.
Pinnacle Foods is owned by private-equity funds controlled by the New Jersey-based Blackstone Group. Both Blackstone Group and Pinnacle Foods have declined to comment on matters related to Birds Eye.
Pro-Fac and Birds Eye have a long history together. Pro-Fac formed in 1961 to supply Curtice-Burns Inc., a processing company formed by the former Cooperative Grange League Federation when regional canneries struggled after World War II.
Agway Inc., the successor to the Cooperative Grange League Federation, sold Curtice Burns to Pro-Fac in 1994. Pro-Fac changed the company name to Agrilink Foods Inc. in 1997 and reorganized to try to reduce debt taken on in the 1994 purchase.
Agrilink bought the Dean Foods Vegetable Co.-and the Birds Eye, Freshlike and Veg-All brands-in 1998, doubling the size of the company.
Heavy debt led to a decision by Pro-Fac to sell a majority stake to Vestar. In 2003, Agrilink became Birds Eye Foods Inc.
Wright believes the companies Pro-Fac currently does business with would favor continuing work with the members, since many are close to customers’ processing facilities. Processors usually want fresh products that are grown nearby, he said.
Wright said he is ecstatic about the Birds Eye sale and its impact on Pro-Fac members even as the cooperative winds down.
"Lots of co-ops have had pretty abysmal endings, but Pro-Fac could go down in cooperative history as one of the most successful farmer-owned co-ops that ever existed," Wright said.
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