Thursday, December 27, 2007

Dual-Class Structure Benefits Tyson Family -- Not Tyson Foods

Since late June, shares of meat producer Tyson Foods (TSN-$15.43) have lost 36.5% of their value, reflecting investor pessimism that higher feed costs would continue to hamper profitability in 2008.

Irrespective of industry economics. the Tyson family will continue to profit, according to our analysis of a proxy statement filed Wednesday with the Securities and Exchange Commission.

On September 28, 2007, the Company entered into a ten-year contract with John Tyson, 54, who retired as CEO in May 2006.

Under the terms of the Employment Agreement, Mr. Tyson will receive a payment of $300,000 per annum to perform certain advisory and limited public relations services (not to exceed twenty (20) hours per month).

In addition, Mr. Tyson will be entitled to reimbursement(s) for annual country club dues, automobile, tax and estate planning advice, security services, personal use of the Company-owned aircraft, and annual premium payment on a $7.5 million life insurance policy. The 10Q Detective estimates the aggregate dollar cost to shareholders of the perquisites Messer. Tyson is contractually entitled to receive through the term of the severance agreement (assuming a four percent inflation factor for each year the contract) to be about $6.54 million.

Mr. Tyson also has equity-based compensation awards—in the aggregate—worth an estimated $17.7 million; and, he is eligible to receive $175,196 in annual benefit payments under the Company’s Supplemental Executive Retirement Plan, beginning in April 2008.

Donald J. Tyson, former Senior Chairman of the Board, entered into a similarly lucrative consulting contract in July 2004. Don Tyson, 77, is the father of John Tyson.

Related Party Transactions

  1. During fiscal year 2007, the Company leased farms from the Tyson family, with payments totaling $832,230.
  2. The Company has an aircraft lease agreement with Tyson Family Aviation, LLC, of which Mr. Don Tyson and Mr. John Tyson are members, with aggregate lease payments to Tyson Family Aviation, LLC during fiscal year 2007 of $2,043,552.
  3. The Company has an agreement with an entity of which Mr. Don Tyson is a principal, for the operation of two-wastewater treatment plants, which service the Company’s chicken processing facilities in Nashville and Springdale, Arkansas. Aggregate payments made by the Company during fiscal year 2007 for said services were $766,592 and $479,623, respectively.
  4. During fiscal year 2007, the Company leased office and warehouse space from entities in which the children of Mr. Don Tyson, including Mr. John Tyson, are partners or owners, with aggregate lease payments of $66,000.
  5. Certain Named Executive Officers of the Company belong The Blessings, a golf club owned by the Tysons. And, of course, the Company pays for senior officers’ membership dues, company golf outings, and business meals at the club.

Dual-Class Structure

Due to rising commodity costs, Tyson predicts it will earn 30 to 70 cents a share next year, well below the consensus analysts' estimate of $1.05 a share. This $0.40 range in earnings reflects management’s view that the Company will experience significant volatility in the beef industry and in the grain markets, according to Wade D. Miquelon – Chief Financial Officer.

Despite the challenging market conditions, the Tyson family knows the recipe for success: own the majority block of voting stock! The Company currently has a
dual-class stock structure—two outstanding two classes of capital stock, Class A common stock and Class B common stock.

Holders of Class B stock are entitled to 10 votes per share while holders of Class A stock are entitled to one vote per share.

Don Tyson, son of the founder, beneficially owns 99.9% of the Class B stock outstanding. In the aggregate, he beneficially owns 71.02% of the voting stock. As the aforementioned governance practices illuminate, whatever the operational success of his namesake company—the Tyson family remains strategically positioned to grow its wealth.

Editor David J. Phillips does not hold a financial interest in Tyson Foods. The 10Q Detective has a Full Disclosure Policy.

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