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June 21, 2021 – Further to the Court’s bidding procedures order [Docket No. 664] and an auction held on June 17, 2021, the Debtors have notified the Court of auction results with stalking horse Farmland Reserve, Inc. a Utah Nonprofit Corporation (the “Buyer,” an entity related to The Church of Jesus Christ of Latter-day Saints) named as the successful bidder with a bid of $209.0mn (which is inclusive of $3.4mn of bidder protections which will not be received by the estates) and named 100C, LLC as the back-up bidder with a bid of $208.0mn.
The Buyer had paced bidding with an $188.0mn stalking horse bid, with the significantly augmented sale proceeds reflected in an amendment to an earlied filed purchase and sale agreement attached to the Debtors' notice (also filed is the back-up bidder's PSA). The back-up bidders's PSA is signed by Peter Headley with notices to be sent to Oak River Farms (Lenexa, Kansas), with each reference providing back-up to reports that this bid was on behalf of the Bill & Melinda Gates Foundation.
Key Terms of the Revised Stalking Horse APA:
- Buyer: Farmland Reserve, Inc. an entity related to The Church of Jesus Christ of Latter-day Saints
- Sellers: Easterday Ranches, Inc., A Washington Corporation and Easterday Farms, A Washington General Partnership, Cody Easterday, Debby Easterday And Karen Easterday.
- The "Easterday Land": All of Easterdays’ rights, title and interest in and to the real property located in Benton County, Washington commonly known as Goose Gap Farm, River Farm, Cox Farm, and Farm Manager House, which are legally described on Schedule 1.1 of the PSA
- "The Land": All of Debtors’ rights, title and interest in and to the real property located in Benton County, Washington commonly known as the Cox Farm, Farm Manager House, River Farm, Nine Canyon Farm, Goose Gap Farm and Storage Complex, which are legally described on Schedule 2.1 of the PSA
- Purchase Price: The PSA's June 21, 2021 amendment provides "he Purchase Price set forth in Section 5.1.1 is hereby amended to be TWO HUNDRED AND FOUR MILLION AND NO/100($204,000,000.00) Dollars, less the stalking horse bidder credit in the amount of $3,400,000.00, plus the $5,000,000.00 Plan Sponsor Contribution set forth in Section 12.1, subject to the terms of Section 12.1, plus any transfer taxes or the like as provided in Section 6.8 of the Purchase Agreement."
- Bid Protections: The proposed Bid Protections consist of (i) a Break-Up Fee in the amount of 2.75% of the Purchase Price and (ii) an Expense Reimbursement in a maximum amount not to exceed $1,500,000.00 to be paid from the sale proceeds of an alternative transaction. Subject to certain conditions and limitations as set forth in Sections 11.2 and 11.3 of the Stalking Horse APA, if the Bankruptcy Court denies the entry of the Sale Order or an alternative transaction is consummated, the Buyer is entitled to an administrative expense claim for the Breakup Fee and Expense Reimbursement that is senior to all other allowed administrative expense claims.
Bidding Procedures Background
The Court's bidding procedures order followed settlements with each of Tyson Fresh Meats, Inc. ("Tyson") and Washington Trust Bank ("WTB") further to which the Debtors have agreed to pursue a sale of their assets and to sale-related milestones. The settlement with Tyson requires Debtor Easterday Ranches, Inc. (“Ranches”) to pursue a sale of the Ranches cattle business and a stipulation with WTB similarly requires Debtor Easterday Farms (“Farms”) to pursue a sale of Farm's feed business.
The Debtors' bidding procedures motion [Docket No. 486] provides: "To expeditiously administer these bankruptcy cases while maximizing the value of their estates, and in accordance with the Debtors’ settlements of disputes with creditors Tyson Fresh Meats, Inc. (‘Tyson’) and Washington Trust Bank (‘Washington Trust’), the Debtors are moving forward with an orderly marketing process (the ‘Sale Process’) for the sale of the Assets (the ‘Sale’).
Debtor Farms produces (a) feed for cattle and (b) crops, including among others, potatoes and onions. Farms’ feed is primarily sold to its sister cattle business, which is owned by Ranches. The Debtors’ operations span approximately 22,500 acres over multiple farms, lots/ranches, and other complexes and facilities, all of which are located in Benton County, Washington. These properties are owned, leased, or otherwise utilized, in whole or in part, by the Debtors, which interests may be subject to purported liens and encumbrances.
Pursuant to that certain Stipulation By and Between Debtors and Non-Debtor Sellers Regarding Cooperation With Respect to the Sale of Debtor and Non-Debtor Assets between the Debtors and the non-Debtor parties thereto (the ‘Cooperation Agreement’), approval of which is sought by separate motion, all of the real property composing the assets – including third party ownership interests – are being marketed and may be sold together.
On February 25, 2021, Ranches filed that certain Notice and Motion of Debtor Easterday Ranches, Inc. for the Entry of an Order Authorizing and Approving Settlement Term Sheet with Tyson Fresh Meats, Inc. [Docket No. 216] (the ‘Tyson Settlement Motion’), which requested court approval of, inter alia, the imposition of certain case milestones on Ranches, including that Ranches must file a motion for approval of sale procedures related to a sale of all or substantially all of Ranches’ real Deadline’) and receive court approval of the same not later than 45 days after the date of filing such a motion (the ‘Bidding Procedures Approval Deadline’).
On March 2, 2021, Farms and Washington Trust Bank entered into and filed that certain Stipulation by and Between Debtor Easterday Farms and Washington Trust Bank (I) Resolving Motion to Appoint Trustee Filed by Washington Trust Bank and (II) Imposing Certain Milestones [Docket No. 242] (the ‘WTB Stipulation’), which imposed certain of the case milestones discussed above on Farms, including the Bidding Procedures Motion Deadline and the Bidding Procedures Approval Deadline.
On March 4, 2021, the Court entered an order [Docket No. 265] approving the Tyson Settlement Motion (the ‘Tyson Settlement’) and an order [Docket No. 266] approving the WTB Stipulation. This Motion is being filed in accordance with the Bidding Procedures Motion Deadline."
The Marketing Process
The motion continues, “The Debtors, with the assistance of their co-Chief Restructuring Officers, are in the process of investigating their restructuring options in order to maximize the value of the Debtors’ estates. In this regard, the Debtors desire to continue a robust marketing process begun prior to the Petition Dates, in which they engaged Root Realty LLC, d/b/a Root Agricultural Advisory (‘Root’) as their broker to market and potentially sell the Properties.
In late December 2020, Root began reaching out to its expansive network of brokers, landowners, and operators in the western United States who may be interested in acquiring some or all of the Properties, preparing marketing information for the Properties, and entering into appropriate nondisclosure agreements with potential purchasers to provide additional information regarding the Properties.
As of the date of this Motion, Root has made significant progress in marketing the Properties. In this regard, Root’s professionals have become well acquainted with the Properties, toured the Properties, established a data room for interested parties, created marketing materials to be provided to potential buyers, and distributed ‘teaser’ emails to potential buyers. Furthermore, the Debtors have received signed nondisclosure agreements from 128 parties, nine of which have indicated intent to submit offers on some or all of the Assets.
The Debtors have begun to entertain proposals to be a Stalking Horse Bidder, and anticipate that if they select a Stalking Horse Bidder, they will do so no later than late April or early May….”
The Assets to Be Sold
…[t]he Debtors’ operations span approximately 22,500 acres over multiple farms, lots/ranches, and other complexes and facilities, which are generally referred to by their common names: (i) Goose Gap Farm, (ii) River Farm, (iii) Nine Canyon Farm, (iv) Cox Farm, and (v) a storage complex on River Farm (collectively, the “Properties”). The Properties consist of approximately 81 parcels, all of which are located in Benton County, Washington. The Properties are owned, leased, or otherwise utilized, in whole or in part, by the Debtors, which interests may be subject to purported liens and encumbrances. As noted above, pursuant to the Cooperation Agreement, approval of which is being sought by separate motion, all of the Properties, including third party ownership interests in such Properties, are being marketed to be sold together, along with related farm equipment and other personal property. A more detailed description of the Properties follows:
- The Goose Gap Farm: Goose Gap Farm comprises approximately 6,300 acres, and includes, among other things, pivot irrigated farmland, dry pasture land, and a pump house. Goose Gap Farm also includes additional leasehold acreage.
- The River Farm: River Farm comprises approximately 5,800 acres and includes, among other things, an approximately 8,400 square foot shop, storage facilities with an approximate capacity of 95,000 bushels of grain, and three manufactured homes. River Farm also includes additional leasehold acreage.
- The Nine Canyon Farm: Nine Canyon Farm comprises approximately 3,000 acres, and includes, among other things, a grape vineyard, cherry orchard, 40,000 square feet of storage facilities, including facilities suitable to hold 5,000 tons of potatoes, four manufactured homes, and a mobile home park with six mobile homes.
- The Cox Farm: Cox Farm comprises approximately 7,500 acres, and includes, among other things, feedlot facilities capable of housing and feeding approximately 35,000 head of cattle, pivot irrigated farmland, a 4,300 square foot horse barn, and a 2,500 square foot residence. Cox also includes additional leasehold acreage, a steel dry commodity and hay storage shed, and nearly 67,000 square feet of storage facilities, including facilities to store over 5,200 tons of onions, 175,000 bushels of dry grain, 30,000 tons of high moisture corn, as well as an additional 30,000 tons of silage storage.
At filing, the Debtors note between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Tysons Fresh Meats, Inc. ("at least" $225.0mn litigation claim), (ii) Segale Properties ($8.7mn unsecured loan claim) and (iii) Animal Health International ($1.1mn trade claim).
The Debtor trades as "Easterday Farms" where a recently updated website tells the all-American story of a potato farming family that moved West from Idaho in 1958 to Washington state in search of "fresh dirt" to grow an agricultural empire based on potatoes and onions. The website makes no accounting of any present or past involvement in cattle ranching (scrubbing references (cached page here) to their grain feed and cattle operations, formerly including "Easterday Farms has now grown to more than 18,000 acres of potatoes, onions, corn and wheat. The grain products are used to feed cattle in the Easterday Ranches feedlots…") or even being a ranch; and herein lies the rub in an evolving "Where's the Beef" scandal.
On December 21, 2020, cattle client Tyson Foods, Inc (“Tyson”) announced (8-K here) that it was undertaking an internal review relating to one of its cattle suppliers (that supplier later named as Easterday) and has determined that "this supplier made misrepresentations regarding the number of cattle the supplier purchased on behalf of the Company’s Beef segment…[with] the misappropriation of Company funds by the supplier caus[ing] the Company to overstate live cattle inventory as of the Company’s fiscal year ended October 3, 2020 by an estimated amount of $285 million." Given Tyson's size, it makes a determination that the alleged fraud (occurring from 2016-2020) "did not…result in a material misstatement of the Company’s previously issued annual or interim consolidated financial statements and that such financial statements may continue to be relied upon."
Nonetheless, an undetected $285.0mn fraud over 4-5 years raises some rather significant internal control issues and Tyson notes that (i) it "identified a material weakness in the Company’s internal control over financial reporting ('ICFR') relating to the physical existence of live cattle inventory." (ii) that it would be amending its 2020 10-K and (iii) that PricewaterhouseCoopers LLP ('PwC'), will also amend its opinion on the Company’s ICFR to state that the Company’s internal control over financial reporting as of October 3, 2020 was not effective."
Although that $285.0mn represented only 2% of Tyson's annual beef supply over the relevant period, the impact may have been considerably more significant at Tyson's meat packing facility near Pasco, Washington which reportedly supplies a substantial proportion of Wendy's beef patties.
Tyson does not detail how the discovery was ultimately made, but at the end of January 2021 it initiated legal proceedings in Franklin County Superior Court where it stated in filings that“… [the Debtor's] President Cody Easterday, has admitted to a scheme in which Defendant [Easterday] has falsified records and submitted fictitious invoices in order to defraud Plaintiff [Tyson] out of more than $225 million. Among other things, Defendant has manufactured documents in order to hide the fact that it was reporting to Plaintiff approximately 200,000 cattle that simply did not exist.” Those filings also note that the allegedly embezzled funds were used “to offset over $200 million in losses (company president Cody Easterday) incurred in the commodities trading markets.”
Tyson is suing to recoup its payments, along with 54,000 head of cattle, and has asked the county court to appoint a receiver. Tyson's efforts to seize cattle and the bankruptcy Court's efforts to restore some semblance of order will be complicated by Easterday's recent reported sale of a feedlot to Agri Beef Co, a Tyson competitor.
In a tragic side story, Cody Easterday's father Gale appears to have ended his life in a head-on collision with one of his company's potato trucks just days before the scandal broke: "Gale Easterday entered onto I-182 in Pasco, Wash., on an exit ramp in the middle of the afternoon. As he drove west in the eastbound lanes he hit a semi head-on that was hauling potatoes for Easterday Farms. The collision caused the semi driver to swerve and hit a second pickup. The semi then veered into westbound lanes where it finally came to a halt. Gale, who was 79 years of age, was pronounced dead at the scene."
About the Debtor
According to the Debtor: “From the early stages of planting to the final phase of packaging and shipping, you will find the Easterday family actively involved in all aspects of delivering you high quality produce you can trust. We are a family-owned and operated farming business. We believe that the size of our business is a unique balance between the economy and efficiency of scale and the attention to detail necessary for customer satisfaction. We are a proud grower and packer of conventionally raised onions and potatoes."
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