- Sanderson Farms announced its board of directors unanimously rejected an unsolicited offer from investment firm Durational Capital Management, which is a new shareholder, to buy the company for $142 per share.
- Sanderson said that price "very substantially undervalues" Sanderson and its future prospects, since it is much lower than its 52-week high share price of $179.45.
- After speculation about an offer surfaced, the board released the statement. Sanderson said it worked with financial and legal advisors and decided Durational Capital's "highly conditional and opportunistic proposal is not in the best interests of Sanderson Farms or its shareholders."
Rumors of a bid for the poultry company quickly spread on Thursday when Street Insider reported Sanderson received a takeover offer from Tyson Foods and Durational Capital Management. After the reports, Sanderson Farms' stock jumped nearly 11% at its peak.
But the report wasn't fully accurate. Later in the day, Sanderson put out the statement that said it had in fact never received a proposal that included Tyson Foods.
Although the offer was unsolicited and reports haven't shown that Sanderson is planning for a sale, if the company were to get a stronger offer, it may more seriously consider a deal. The company said in the statement it has Centerview Partners serving as its financial advisors and gave this bid "careful consideration."
It is unclear at what price they would consider a sale, or if they would at all. Even after Thursday's bump in prices as speculation spread, the company's stock closed at $126.91 a share.
Sanderson Farms, which has more 18,000 employees, processes more than 13.6 million chickens each week, the company said. In 2019, the company was ranked as the third-biggest poultry producer in the U.S., producing more than 4.6 billion pounds of meat that year.
Sanderson said in its statement the board thinks it can "generate significant additional value by continuing to execute its strategic organic growth plan." At its recent investor day, the company announced plans to increase production to serve the growing grocery market, which includes identifying and vetting a location for a new facility. This month, Sanderson also announced the board authorized the buyback of up to 2 million of the company's shares.
This unsolicited offer from Durational Capital comes at a time when meat companies are recovering from coronavirus outbreaks. Many producers across the country struggled to keep doors open while trying to preventing the virus from spreading among employees.
But meat plants quickly became hotspots for COVID-19, with thousands testing positive across the industry. Some workers at Sanderson Farms' plants tested positive for the virus and some shared concerns about conditions inside plants. But the company did take some proactive measures. Early on in the pandemic, Sanderson cut chicken processing in Georgia after it told more than 400 healthy workers at a 1,500-person plant to stay home with pay for two weeks. The employees sent home lived in a county that saw a spike in coronavirus cases.
In its most recent earnings, Sanderson reported net income of $32.8 million for the quarter, a decline from its net income of $53.4 million at the same time last year. The loss of business in the foodservice space during the pandemic and the volatility of the market has impacted Sanderson's earnings this year.
"As during our second fiscal quarter, our results for the third quarter reflect the impact of the extraordinary challenges caused by the COVID-19 pandemic," CEO Joe Sanderson said on a recent earnings call
Even though Sanderson has a growth plan in place, given the unprecedented challenges Sanderson has faced, it could end up being more open to another potential takeover bid — for the right price.