Market Volatility Caused Sale of Golden Oval

US - Documents have been released that explain why Golden Oval Eggs was sold to Rembrandt: primarily, pressures of market volatility.
calendar icon 22 April 2009
clock icon 4 minute read

The reasons the board of managers recommended the sale of all the assets of Golden Oval Eggs to Rembrandt Enterprises, Inc. are outlined in documents filed with the Securities and Exchange Commission, reports Agri News.

The information was presented to members at meetings in Iowa and Minnesota prior to Golden Oval unit holders voting on the proposed sale on 23 March at Jackpot Junction, near Morton.

The sale of the assets was approved by 96 per cent of the members voting.

A presentation used at the information meetings and a proxy statement sent to members and filed with the Securities and Exchange Commission explain that Golden Oval acquired the egg processing division of Moark, LLC, a subsidiary of Land O'Lakes, on June 30, 2006.

The transaction doubled the revenues of the company as it sought to achieve an objective of entering the further processed value-added segments of the egg industry. The acquisition required Golden Oval to procure eggs and liquid eggs from outside suppliers because no additional laying hens were included in the purchase.

At about the same time that the deal was finalized, agricultural markets entered a period of increased volatility. At the same time, the company was investing to move into further processed lines, the selling prices of the products and the cost of feed, eggs and liquid to manufacture began to vary widely from historical norms. Liquid egg prices declined and corn and grain prices soared. Credit markets began to show volatility not seen in many years, resulting in a tightening of lending standards.

On 11 July 2007, according to the proxy statement, Golden Oval officials met with the company's senior secured lenders and indicated that it was unlikely that it would meet the original projections underlying the credit agreement.

According to Agri News, the company was unable to generate cash sufficient to reduce its outstanding principal according to the original plan although total debt was stabilized and all interest payments were being made. On the same day, the company met with its subordinated lender and delivered the same message.

The senior lenders indicated that leverage, or the ratio of debt to equity, was too great, and the company needed to find ways to reduce its overall indebtedness.

After exploring many alternatives, company officials determined that the transaction with Rembrandt best met its objectives of repaying the company's senior debt and providing the greatest available benefit to unit holders.

According to the presentation given to members, the company estimated aggregate distribution proceeds at approximately $4.03 per unit. The example in the presentation showed that a member owning 5,000 Golden Oval units would receive $3 per unit within 30 days of the sale closing, another 75 cents within 120 days of closing and 28 cents before the end of 2009 for a total of $20,150.

The Golden Oval board recommended that members vote for the transaction because all parties would be paid in full including senior debt and bondholders, suppliers and vendors, and it would return cash to members.

Golden Oval units traded in the secondary market in the sub-$2 range prior to unit trading being suspended, concludes the Agri News report.

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