Too much BBQ for Pilgrim’s Pride…

December 2, 2008

There’s something about this song that I first heard in Florida called “Too Much BBQ” by (mute the sound on your computer first) Big Twist and the Mellow Fellows that made me think of the bankruptcy filing by Pilgrim’s Pride (PPC) yesterday.

How so? Because we’ve footnoted Pilgrim’s Pride twice over the past few years (see here and here) for what seemed like a crazy number of related party transactions. Granted, some of this seems to be par for the course in this particular industry, where lucrative side deals for executives and directors are almost as common (and about as fattening) as chicken wings. But even given that, all of this self-dealing certainly raised questions.

For example, in 2005, a company known as Bo’s Pilgrim Poultry G.P, which happened to be controlled by Pilgrim’s Pride Chairman Lonnie “Bo” Pilgrim, received a whopping $54 million for “chickens produced”. The following year, that number dropped to a mere $790K — as sure of a sign as any that something just wasn’t quite right about those numbers. There were other payments, too, like $62,500 a month in 2006 paid to another company to rent egg production facilities, and the lease of a plane owned by Bo — for $400K that year — as well as another $130K Bo received in “other compensation” for his personal use of the plane.

Last year’s proxy was a continuation of the story, with new disclosures of related party transactions and what seemed like a crazy agreement to pay former Vice Chairman Clifford E. Butler $55K a month in consulting fees in exchange for 20 hours of work. Additional hours were billed at $250 an hour with the agreement valid through 2010. Wonder if that will hold up in bankruptcy court?

The bottom line is that while rising feed costs and weak prices for chicken may have forced the company’s hand yesterday, all of those related party transactions certainly didn’t help. As we’ve seen here time and time again, self-dealing at publicly traded companies rarely leads to a good outcome. It was simply a case of too much BBQ!

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