Tyson Readies Possible Proxy Fight
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Adding a vegan to the board of directors at one of the largest meat companies in the world is kind of like releasing a bull in a China shop -- things are going to get broken. Nonetheless, winning a slot on Tyson Food's (NYSE: TSN) board is precisely what animal activist Wayne Pacelle -- who sits at the helm of the Humane Society and who has garnered support from the likes of corporate raider Carl Icahn -- is fighting for.
At issue is a seemingly cruel animal practice, which involves the use of gestation stalls. These crates, as they were, house expecting hogs whose babies are later killed and used for breakfast meat. Pacelle's beef is with the conditions that the sows are raised in, which include a pig pen that is so narrow that the animal does not have enough room to fully turn around. Painfully, its only exercise is to stand up and then sit back down again.
Pacelle, who has been a vegan for nearly three decades, admits in an SEC filing that his quest for a seat on the board at Tyson is "strange:"
“It’s certainly unusual for a lifelong animal advocate to run for the board of the second-biggest meat company in the world. Nonetheless, it is imperative that a voice on Tyson’s board speak for the company’s many customers, partners, and investors who are demanding the end of gestation crates and more humane treatment of animals.”
Tyson shares are trading 22% below its 52-week high. The company has a trailing PE ratio of just over 12% and a dividend yield of about 1%. In its fiscal 3Q, Tyson was challenged by rising grain costs and what it referred to as "soft demand," conditions it expects to continue into 2013.
In its response to The Wall Street Journal, Tyson Foods -- which purchases the majority of its pork from independent suppliers -- appears to be passing the buck on gestation practices. The company is "...committed to humane animal treatment and expects the same from the independent family farmers who supply us with chickens, hogs and cattle."
Carl Icahn is supporting Pacelle and --while he is not the one wrangling for a corporate turnaround this time -- he is speaking out the practice of gestation stalls and said in a press release:
“Eliminating those crates will both prevent cruelty to animals, and will improve Tyson’s business prospects by putting the company on an equal competitive footing with the bulk of the industry that is already rejecting gestation crates."
Although Icahn Enterprises does not hold any interest in Tyson Foods, the holding company does have exposure to food packaging companies, according to the U.S. SEC. For its part, the Humane Society owns 317 of shares of Tyson's Class A Common Stock, which is less than 0.1% of the company's shares outstanding. This means it's going to be quite a challenge for Pacelle to muster the support he needs for a seat on Tyson's board.
Tyson has two classes of stock, class A and class B shares, and according to The Wall Street Journal Tyson family members have a voting majority. While Pacelle is attempting to convince shareholders to elect him to the board at the company's spring 2013 shareholder meeting, his deeper concern appears to be altruistic. He wants Tyson to move away from gestation crating the way the meat company's peers have agreed to do.
Fast-food giant McDonald's Corp (NYSE: MCD) has declared that over the next decade it would shun pork suppliers using gestation crates. Shares of McDonald's are down about 9% year-to-date. McDonald's shares have not changed much from May levels, when the company revealed its intentions to transition away from gestation stalls.
Tyson rival Smithfield Foods (NYSE: SFD), which is trading at about 20% below its 52-week high, agreed five years ago to phase out the use of gestation crates by 2017 in favor of a group housing system at its internal facilities. Like Tyson, Smithfield has been up against higher grain costs that have weighed on the pork producer's revenues and profits. The company expects to benefit from strengthening pork prices in coming months.
For his part, Pacelle has chosen an uphill battle—but he is fighting for a cause he believes in. Icahn, who is pushing 80-years old, can't fight every battle, but by counseling Pacelle the Humane Society executive continues to extend his legacy. The pressure this duo is placing on Tyson gets to the core of the way that the company manages its supply chain. Any effectual change to the treatment of these animals would no doubt be a victory for the pair whether or not Pacelle is offered a seat at the proverbial table in this China shop.
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