Item 8.01. Other Events.
As previously announced on August 9, 2021, Sanderson Farms, Inc., a Mississippi
business corporation (the "Company"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"), with Walnut Sycamore Holdings LLC, a Delaware
limited liability company ("Parent"), Sycamore Merger Sub LLC, a Delaware
limited liability company and an indirect wholly owned subsidiary of Parent
("Merger Sub"), and solely for purposes of certain provisions specified therein,
Wayne Farms LLC, a Delaware limited liability company ("Wayne Farms"). The
Merger Agreement provides, among other things and subject to the terms and
conditions set forth therein, that Merger Sub will be merged with and into the
Company (the "Merger"), with the Company continuing as the surviving corporation
and as an indirect wholly owned subsidiary of Parent.
In connection with the Merger, the Company filed with the Securities and
Exchange Commission (the "SEC") a definitive proxy statement of the Company,
dated September 13, 2021 (the "Proxy Statement"), which the Company commenced
mailing to stockholders of the company on or about September 13, 2021. In the
Proxy Statement, the Company disclosed one lawsuit relating to the Merger that
was filed: Ryan O'Dell v. Sanderson Farms, Inc., et al., Case No. 1:21-cv-7588
(S.D.N.Y.) (the "O'Dell Lawsuit"). Following the filing of the Proxy Statement
and prior to the filing of this Current Report on Form 8-K, seven additional
lawsuits relating to the Merger were filed: (i) Alex Ciccotelli v. Sanderson
Farms, Inc., et al., Case No. 1:21-cv-07727 (S.D.N.Y.) (the "Ciccotelli
Lawsuit"); (ii) Yurie Hoberg v. Sanderson Farms, Inc., et al., Case No.
1:21-cv-05329 (E.D.N.Y.) (the "Hoberg Lawsuit"); (iii) Jeanne Androsiglio v.
Sanderson Farms, Inc., et al., Case No. 1:21-cv-08024 (S.D.N.Y.) (the
"Androsiglio Lawsuit"); (iv) Patrick Oswald v. Sanderson Farms, Inc., et al.,
Case No. 1:21-cv-08170 (S.D.N.Y.) (the "Oswald Lawsuit"); (v) Matthew Walker v.
Sanderson Farms, Inc., et al., Case No. 1:21-cv-08185 (S.D.N.Y.) (the "Walker
Lawsuit"); (vi) Anthony Morgan v. Sanderson Farms, Inc., et al., Case No.
1:21-cv-08187 (S.D.N.Y.) (the "Morgan Lawsuit); and (vii) Matthew Hopkins v.
Sanderson Farms, Inc., et al., Case No. 2:21-cv-04389 (E.D. Pa.) (the "Hopkins
Lawsuit and together with the O'Dell Lawsuit, Ciccotelli Lawsuit, Hoberg
Lawsuit, Androsiglio Lawsuit, Oswald Lawsuit, Walker Lawsuit and Morgan Lawsuit,
the "Lawsuits"). The Lawsuits generally allege that the Proxy Statement omits
material information in violation of Section 14(a) and 20(a) of the Exchange
Act, rendering the Proxy Statement materially incomplete and misleading. The
Oswald Lawsuit also alleges breaches of fiduciary duty related to information
disclosed in the Proxy Statement. The Lawsuits generally seek, among other
things, injunctive relief to prevent the consummation of the Merger, or
alternatively, rescission or rescissory damages in the event the Merger is
consummated, damages, costs, including attorneys' fees, and such other and
further equitable relief as the court may deem just and proper. Additionally, on
October 14, 2021 a purported Company stockholder sent a demand letter alleging
insufficiencies relating to the disclosures in the Proxy Statement (such letter,
the "Demand Letter" and together with the Lawsuits, the "Matters").
The Company believes that the claims asserted in the Matters are without merit
and that no supplemental disclosure is required under applicable law. However,
in order to moot the unmeritorious disclosure claims, to avoid the risk of the
Matters delaying or adversely affecting the Merger and to minimize the costs,
risks and uncertainties inherent in litigation, without admitting any liability
or wrongdoing, the Company has determined to voluntarily supplement the Proxy
Statement as described in this Current Report on Form 8-K. Nothing in this
Current Report on Form 8-K shall be deemed an admission of the legal necessity
or materiality under applicable laws of any of the disclosures set forth herein.
To the contrary, the Company specifically denies all allegations in the Matters,
including allegations that any additional disclosure was or is required, and
believes that the supplemental disclosures contained herein are immaterial.
The supplemental disclosures contained herein should be read in conjunction with
the Proxy Statement, which should be read in its entirety. Defined terms used
but not defined herein have the meanings set forth in the Proxy Statement.
The resolution of the Matters is not expected to affect the timing of the
special meeting of the Company's stockholders, which is scheduled to be held on
October 21, 2021, or the amount of the consideration to be paid to the Company's
stockholders in connection with the Merger.
AMENDED AND SUPPLEMENTAL DISCLOSURES
The following disclosure supplements as an additional thirty-sixth paragraph the
section of the Proxy Statement entitled "Background of the Merger" beginning on
page 29 of the Proxy Statement:
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On August 8, 2021, the Board of Directors also considered the proposed
amendments to the employment agreement for Messrs. Sanderson, Cockrell and Butts
that would be in effect upon the signing of the Merger, including amendments to
their severance benefits. The Board of Directors discussed and recognized the
importance of retaining each between the signing and closing of the Merger to
ensure the successful completion of the transaction for Sanderson Farms
Stockholders. Accordingly, the Board of Directors unanimously approved each
amendment of the respective employment agreements.
The following disclosure supplements and restates the fourth paragraph under the
section of the Proxy Statement entitled "Opinion of Centerview Partners
LLC-Summary of Centerview Financial Analysis-Selected Public Company Analysis"
beginning on page 41 of the Proxy Statement (with additions underlined):
In performing this analysis, Centerview calculated, for each of the selected
companies, the company's enterprise value (referred to as EV) (calculated as the
equity value (determined using the treasury stock method and taking into account
outstanding in-the-money options and other equity awards and convertible
securities, as applicable) plus the face value of debt and certain liabilities
less cash and cash equivalents and certain other investments), as a multiple of
consensus estimates (drawn from FactSet, a data source containing historical and
estimated financial data) of such selected company's estimated EBITDA for the
years 2021 and 2022, in each case conformed to the Company's fiscal year ending
October 31 using annual time weighting. Based on its experience and professional
judgment and in order to account for the Company's higher earnings volatility
relative to the selected companies and the Company's historical discount to the
median EV/NTM (next twelve month) EBITDA of the selected companies during
periods of elevated profitability, Centerview applied a downward adjustment of
25% to the median EV/EBITDA multiples for the selected companies. The Company
has historically traded at a discount relative to the selected companies during
times of elevated profitability (as is currently the case, where the Company's
current consensus NTM (next twelve month) EBITDA per pound is at approximately
the 85th percentile of the Company's NTM EBITDA per pound over the last 10
years). The selected companies and the results of this analysis are summarized
as follows:
EV / FY2021E EV / FY2022E
Selected Companies EBITDA EBITDA
Pilgrim's Pride Corporation 6.0x 5.6x
Tyson Foods, Inc. 7.6x 7.4x
Peer Median 6.8x 6.5x
Peer Median with a 25% Discount 5.1x 4.9x
The following disclosure supplements and restates the sixth paragraph under the
section of the Proxy Statement entitled "Opinion of Centerview Partners
LLC-Summary of Centerview Financial Analysis-Selected Public Company Analysis"
beginning on page 41 of the Proxy Statement (with additions underlined):
With respect to the fiscal year 2021 analysis, Centerview applied the EBITDA
multiple reference range to the Company's estimated fiscal year 2021 EBITDA of
$626 million, as set forth in the Forecasts, to derive a range of implied
enterprise values for the Company. Centerview added to each of these ranges of
implied enterprise values the Company's estimated net cash at July 31, 2021 of
$201 million as set forth in the Internal Data to derive a range of implied
equity values for the Company. Centerview then divided these implied equity
values by 22,329,685, the number of shares of Sanderson Farms common stock
outstanding as set forth in the Merger Agreement (on a fully diluted basis but
excluding the Company Performance Share Awards (as defined in the Merger
Agreement)) and as set forth in the Internal Data, which resulted in a range of
implied values per share of Sanderson Farms common stock of $163 to $205
(rounded to the nearest $1.00). Centerview then compared the results of the
above analysis to the Merger Consideration of $203 per share of Sanderson Farms
common stock in cash, without interest, to be paid to the holders of Sanderson
Farms common stock (other than Excluded Shares) pursuant to the Merger
Agreement.
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The following disclosure supplements and restates the table under the section of
the Proxy Statement entitled "Opinion of Centerview Partners LLC-Summary of
Centerview Financial Analysis-Selected Precedent Transaction Analysis" beginning
on page 43 of the Proxy Statement (with additions underlined):
Transaction
Announcement Value EV / LTM
Date Target Acquiror (in billions) EBITDA
August 20, 2018 Keystone Foods Tyson Foods, 10.2x
LLC Inc. $2.2
April 9, 2018 National Beef Marfrig S.A. 4.4x
Packing
Company, LLC $2.3
September 11, 2017 Moy Park Pilgrim's Pride 9.8x
Holdings Corporation
(Europe) Ltd. $1.3
July 1, 2015 Cargill Pork, JBS USA, LLC 6.8x(1)
LLC $1.5
June 21, 2015 Moy Park Ltd. JBS S.A. $1.5 7.9x(2)
November 21, 2014 P&M Quality JBS Australia 9.7x
Smallgoods Pty Pty Ltd.
Ltd. $1.3
December 23, 2013 Campofrio Food Sigma Alimentos 8.4x(3)
Group S.A. S.A. de CV and
Smithfield
Foods, Inc. $1.6
May 29, 2013 Smithfield Shuanghui 9.3x
Foods, Inc. International
Holdings Limited $7.1
September 16, 2009 Pilgrim's Pride JBS USA 10.7x
Corporation Holdings,
Incorporated $2.8
September 16, 2009 Bertin Ltda. JBS S.A. $5.2 12.3x
(1) Based on JBS-disclosed EBITDA derived from the 5-year average margin of JBS
USA Pork, as set forth in transaction announcement.
(2) Based on estimated 2015 EBITDA.
(3) Based on revised offer of €6.90 per share as of December 23, 2013. Multiple
based on the last 12-month EBITDA as reported, equivalent to a 7.8x multiple
based on normalized EBITDA as defined by Campofrio Food Group SA.
The following disclosure supplements and restates the second paragraph under the
section of the Proxy Statement entitled "Opinion of Centerview Partners
LLC-Summary of Centerview Financial Analysis-Discounted Cash Flow Analysis"
beginning on page 44 of the Proxy Statement (with additions underlined):
In performing this analysis, Centerview calculated a range of implied equity
values for the Company's shares of Sanderson Farms common stock by
(a) discounting to present value, as of July 31, 2021, using discount rates
ranging from 7.5% to 8.5% (reflecting Centerview's analysis of the Company's
weighted average cost of capital using the Capital Asset Pricing Model and based
on considerations that Centerview deemed relevant in its professional judgment
and experience) and the mid-year convention: (i) the forecasted unlevered free
cash flows of the Company over the period beginning August 1, 2021 and ending
October 31, 2025 as set forth in the Forecasts and (ii) a range of implied
terminal enterprise values of the Company, calculated by Centerview using
perpetuity growth rates of 1.0% to 2.0% (which were based on Centerview's
experience and professional judgement of the Company's potential long-term cash
flow growth rate) which implied a range of EBITDA multiples of 6.7x to 9.1x
based on the Company's forecasted terminal year EBITDA of approximately
$511 million and (b) adding to the foregoing results the Company's estimated net
cash at July 31, 2021 of $201 million, as set forth in the Internal Data.
Centerview then divided these implied equity values by 22,329,685, the number of
shares of Sanderson Farms common stock outstanding as set forth in the Merger
Agreement (on a fully diluted basis but excluding the Company Performance Share
Awards) and as set forth in the Internal Data, which resulted in a range of
implied
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values per share of Sanderson Farms common stock of $170 to $215, rounded to the
nearest $1.00. Centerview then compared the results of the above analysis to the
Merger Consideration of $203 per share of Sanderson Farms common stock in cash,
without interest, to be paid to the holders of Sanderson Farms common stock
(other than Excluded Shares) pursuant to the Merger Agreement.
The following disclosure supplements and restates the second bullet point under
the section of the Proxy Statement entitled "Opinion of Centerview Partners
LLC-Other Factors" beginning on page 45 of the Proxy Statement (with additions
underlined):
• Analyst Price Target Analysis. Centerview reviewed stock price targets
for the shares of Sanderson Farms common stock published by seven
(7) Wall Street analysts in publicly available analyst reports as of
June 18, 2021 (the last trading day before the Wall Street Journal
reported on June 21, 2021 that the Company was exploring a sale), which
indicated low and high stock price targets for the shares of Sanderson
Farms common stock ranging from $157 per share to $195 per share.
The following disclosure supplements and restates the third paragraph of the
section of the Proxy Statement entitled "Opinion of Centerview Partners
LLC-General" beginning on page 45 of the Proxy Statement (with additions
underlined):
Centerview is a securities firm engaged directly and through affiliates and
related persons in a number of investment banking, financial advisory and
merchant banking activities. In the two years prior to the date of its written
opinion Centerview provided from time to time general financial advisory
services to the Company, and Centerview received approximately $1,500,000 in
compensation from the Company during such period. In the two years prior to the
date of its written opinion, Centerview was not engaged to provide financial
advisory or other services to Parent, Merger Sub, Wayne Farms or Cargill, an
affiliate of Parent, and Centerview did not receive any compensation from
Parent, Merger Sub, Wayne Farms or Cargill during such period. In the two years
prior to the date of its written opinion, Centerview was engaged to provide
financial advisory or other services unrelated to the Company to CGC, the
indirect majority owner of Wayne Farms, in connection with certain internal
matters, and Centerview received less than $1,000,000 in compensation from CGC
for such services. Centerview may provide financial advisory and other services
to or with respect to the Company, Parent, Wayne Farms, Cargill, CGC or their
respective affiliates in the future, for which Centerview may receive
compensation. Certain (i) of Centerview and its affiliates' directors, officers,
members and employees, or family members of such persons, (ii) of Centerview's
affiliates or related investment funds and (iii) investment funds or other
persons in which any of the foregoing may have financial interests or with which
they may co-invest, may at any time acquire, hold, sell or trade, in debt,
equity and other securities or financial instruments (including derivatives,
bank loans or other obligations) of, or investments in, the Company, Parent,
Wayne Farms, Cargill, CGC or any of their respective affiliates, or any other
party that may be involved in the Transaction.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K includes forward-looking statements within the
meaning of the "safe harbor" provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are based on a number of assumptions about
future events and are subject to various risks, uncertainties and other factors
that may cause actual results to differ materially from the views, beliefs,
projections and estimates expressed in such statements. These risks,
uncertainties and other factors include, but are not limited to, those discussed
under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 2020 and Quarterly Report on Form 10-Q for the quarter
ended July 31, 2021, and the following: (1) the timing, receipt and terms and
conditions of any required governmental or regulatory approvals of the proposed
transaction and the related transactions involving affiliates of Cargill and
Continental Grain that could reduce the anticipated benefits of or cause the
parties to abandon the proposed transaction; (2) risks related to the
satisfaction of the conditions to closing the proposed transaction (including
the failure to obtain necessary regulatory approvals or the approval of the
Company's stockholders), and the related transactions involving affiliates of
Cargill and Continental Grain, in the anticipated timeframe or at all; (3) the
risk that any announcements relating to the proposed transaction could have
adverse effects on the market price of the
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Company's shares of common stock, par value $1.00 per share; (4) disruption from
the proposed transaction making it more difficult to maintain business and
operational relationships; (5) the occurrence of any event, change or other
circumstances that could give rise to the termination of the Merger Agreement
entered into pursuant to the proposed transaction or of the transactions
involving affiliates of Cargill and Continental Grain; (6) risks related to
disruption of management's attention from the Company's ongoing business
operations due to the proposed transaction; (7) disruption from the proposed
transaction making it difficult to maintain business and operational
relationships, including retaining and hiring key personnel and maintaining
relationships with the Company's customers, vendors and others with whom it does
business; (8) significant transaction costs; (9) the risk of litigation and/or
regulatory actions related to the proposed transaction or unfavorable results
from currently pending litigation and proceedings or litigation and proceedings
that could arise in the future; (10) other business effects, including the
effects of industry, market, economic, political or regulatory conditions;
(11) information technology system failures, data security breaches, data
privacy compliance, network disruptions, and cybersecurity, malware or
ransomware attacks; (12) changes resulting from the COVID-19 pandemic, which
could exacerbate any of the risks described above, and could include: high
absentee rates that have prevented and may continue to prevent the Company from
running some of its facilities at full capacity, or could in the future cause
facility closures; (13) an inability of contract poultry producers to manage
their flocks; (14) supply chain disruptions for feed grains; (15) further
changes in customer orders due to shifting consumer patterns; (16) disruptions
in logistics and the distribution chain for the Company's products;
(17) liquidity challenges; and (18) a continued or worsening decline in global
commercial activity, among other unfavorable conditions.
Readers are cautioned not to place undue reliance on forward-looking statements
made by or on behalf of the Company. Each such statement speaks only as of the
day it was made. The Company undertakes no obligation to update or to revise any
forward-looking statements. The factors described above cannot be controlled by
the Company. When used in this Current Report on Form 8-K, the words "believes,"
"estimates," "plans," "expects," "should," "could," "outlook," and "anticipates"
and similar expressions as they relate to the Company or its management are
intended to identify forward looking statements. Forward-looking statements in
this Current Report on Form 8-K may include, without limitation: statements
about the potential benefits of the proposed acquisition, anticipated growth
rates, the Company's plans, objectives, expectations, and the anticipated timing
of closing the proposed transaction.
Additional Information and Where to Find It
In connection with the proposed transaction, the Company filed with the SEC the
Proxy Statement on September 13, 2021. The Company commenced mailing the Proxy
Statement to its stockholders on or about September 13, 2021. THE COMPANY URGES
YOU TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED OR TO BE
FILED WITH THE SEC CAREFULLY AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE COMPANY, THE PROPOSED TRANSACTION AND RELATED
MATTERS. Investors may obtain a free copy of the Proxy Statement and other
related documents filed by the Company with the SEC at the website maintained by
the SEC at www.sec.gov. Investors may also obtain a free copy of the Proxy
Statement and other documents filed by the Company with the SEC by accessing the
Investors section of the Company's website at http://sandersonfarms.com.
Participants in the Solicitation
The Company and certain of its directors, executive officers and employees may
be considered to be participants in the solicitation of proxies from the
Company's stockholders in connection with the proposed transaction. Information
regarding the persons who may, under the rules of the SEC, be deemed
participants in the solicitation of the stockholders of the Company in
connection with the proposed transaction, including a description of their
respective direct or indirect interests, by security holdings or otherwise is
included in the Proxy Statement. You may also find additional information about
the Company's directors and executive officers in the Company's proxy statement
for its 2021 annual meeting of stockholders, which was filed with the SEC on
January 14, 2021 and in subsequently filed Current Reports on Form 8-K and
Quarterly Reports on Form 10-Q. You can obtain free copies of these documents
from the Company using the contact information above.
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