Good idea Sandhusker but.....................
Family grasp cited in slide of Tyson stock
Arkansas Democrat-Gazette/CRISTAL CODY
May 4, 2003
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SPRINGDALE - Tyson Foods Inc.'s stock hit a 13-year low in March on news that the company would break even in the second quarter instead of making a profit. But are there other reasons for the stock's poor performance?
Some industry observers say the stock can't reach its potential because of the company's dual stock class, which gives the Tyson family control over the publicly owned business.
Tyson Foods has a ""lot of attributes that tend to be looked upon unfavorably by investors - the dual stock class structure, control by the family,"" said Carol Bowie, director of governance research for the Investor Responsibility Research Center in Washington, D.C.
The company's Class A stock offers one vote per share while Class B shares, owned by retired Senior Chairman Don Tyson, allow 10 votes per share.
Don Tyson's son, John Tyson, 49, now heads the company as chairman and chief executive officer. \r\nBut his father still wields immense influence.\r\nUnder the dual system, Don Tyson, 72, son of deceased company founder John Tyson, commands 80 percent of the voting power at the Springdale-based meat empire.
""It's deemed to be a shareholder-unfriendly feature,"" Bowie said of dual shares.\r\nDon Tyson retired from Tyson Foods but continues to receive annual compensation and retains control of the company through the dual stock and as a director. He also receives millions of dollars in payments for farm animals or leased property to the company, such as the wastewater treatment plant in Howard County that serves Tyson Foods' chicken plant in Nashville.
BOARD CHANGES
Investors are wary of the company since Tyson Foods has ""relatives on the board,"" Bowie said. ""They don't have a majority of independents on their board.""
However, Tyson Foods reduced the board's size in January from 15 members to 10, eliminating four inside directors, including a former president.\r\nDirectors are considered insiders if they work or formerly worked for the company, or are relatives or have other relationships, such as consulting contracts, to the directors or company owners.
The board said in a Securities and Exchange Commission filing that it adopted the new corporate governance standards because of the Sarbanes-Oxley Act of 2002 and proposed amendments to the New York Stock Exchange.
Tyson Foods, though, is exempt from the NYSE independent board requirements since Don Tyson retains majority control of the company.
The move apparently did nothing to boost share prices, because within a week of the announcement, Tyson's stock had fallen 25 cents.\r\nThe company had its share of problems over the past two years - faltering export markets, lower product prices and a glut of meat in the United States, plus a court trial over allegations that Tyson Foods approved the smuggling of illegal immigrants to work in its plants. It won the court trial, the glut is diminishing and export markets are returning, but the stock, along with other food stocks, continues to languish.
Shares hit a 13-year low of $ 7.25 in March. The stock has fallen 38 percent from a 52-week high in June of $ 15.71.
DUAL STOCK SHARES\r\nOne holder of Tyson Class A stock, the California Public Employees Retirement System, the nation's largest public pension fund with $ 155 billion in assets, sought in 2000 to end the supervoting Class B shares that let the Tyson family stay in charge. But a shareholder vote failed.
System spokesman Brad Pacheco, who has called Tyson Foods a ""family fiefdom,"" said ""dual stock class is something we don't like to see.""
Tyson said in a SEC filing that keeping two types of stock allows the company to focus on long-term growth. It also helps finance growth without diluting the family's control, the company said.
Dual stock can work in several ways, including one class that holds a higher number of votes or a class that has no voting rights but is sold publicly.
Companies that operate dual stocks include Adolph Coors Co., Dow Jones & Co., Estee Lauder Inc., Washington Post Co., Comcast Corp. and Dillard's Inc., said Bowie, of the Investor Responsibility Research Center.
""It's typically companies that were once family owned, and it's a structure that enables the family to maintain some level of control,"" she said.
About 12 percent of the 2,000 companies that the agency tracks annually have dual stock classes, she said.
Some companies are offering to eliminate dual shares.
The Reader's Digest Association combined its dual stocks into one class with one vote per share in December after shareholders approved the proposal.\r\nChurch & Dwight Co., which makes Arm & Hammer baking soda, and Fairchild Semiconductor have shareholder proposals this year to combine dual stocks into one class with equal votes.
""Usually the reason they're doing it is they require more capital because investors are wary of investing in a company where they may have limited rights as minority shareholders,"" Bowie said of why some companies are moving away from dual stock classes.
Dual stocks also act as an antitakeover device, analysts say, since control is in the hands of a single shareholder or small group of shareholders.\r\nThat's why Church & Dwight said in an April SEC filing that shareholders approved of its dual stocks in 1986. Under its current system, stockholders who own shares for at least 48 consecutive months are allowed to exercise four votes per share.
The company said the dual stock is no longer necessary through changes in law and other protection against takeovers. The defense mechanism can provide a company with stability from management's perspective, Bowie said.
But Tyson is immune to a hostile takeover, since control of the company lies with the family.\r\nTakeover measures ""can have a depressing effect on the company's stock price,"" Bowie said.\r\nBut not everyone believes the stock won't grow in value.
Christine McCracken, a food analyst with Midwest Research in California, predicts that Tyson shares will reach $ 17 in 12-18 months.\r\n""This is a stock that should trade up into the high teens,"" she said.
Although speculation about the Tyson family's control of the business will continue, ""You could also look at it as the company has a vested interest in getting the stock price up,"" she said.
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