Pilgrim's Pride troubles bring worry to East Texas town

Lonnie "Bo" Pilgrim, 80, who chopped cotton for $1 a day as a child, had partnered with his brother Aubrey in a feed and live-chick business three blocks away in 1947.

Their corrugated steel-walled store evolved into Pilgrim's Pride, a vertically integrated poultry company -- from feed mills and hatcheries to packaged boneless chicken. After Aubrey's death 42 years ago, Bo built it into the world's biggest chicken processor with 47,900 employees and annual sales of $8.5 billion. And the company became Pittsburg's economic engine and biggest employer.

Bo Pilgrim's house alone would likely place him as the most affluent person in this quiet East Texas town. Nicknamed "Cluckingham Palace" for its unmuted ostentation, the slate-roofed, 25,000-square-foot, French-inspired mansion is appraised by the county at $4.8 million.

But on Dec. 1, neighbors were stunned to hear Pilgrim's Pride announce that it was reorganizing under a Chapter 11 bankruptcy. From a two-year high of $40 a share, the stock price (ticker: PGPDQ.PK) has fallen to less than 70 cents.

"I was once told my worth was $1.1 billion," Bo Pilgrim said during chapel at Fort Worth's Southwestern Baptist Seminary this fall. He then indicated that his holdings were now reduced to about $100 million, according to his pastor, the Rev. Stephen Packer, who was among the listeners.

After a pause, the Texas chicken magnate vowed to the seminarians: "I am going to make my second billion."

That's what his friends and neighbors certainly hope.

In the meantime, there is a palpable undercurrent of worry in this community of 5,100, some of whom were recipients of Bible tracts he handed out with a $20 bill tucked inside.

"We're sort of holding our breath and waiting to see that Pilgrim's Pride continues and thrives," said Paul R. Mayben, owner of the local men's shop. "It's not just for the business. The employees are all our friends."

Residents say the dry-humored octogenarian, although not publicly seen as often recently, exhibits no signs of financial catastrophe when he does appear at church and elsewhere.

Few can deny he has woven his company into Pittsburg's social and commercial fabric.

"Pilgrim's Pride made a living for all of us," said another Granny Y diner, Ken Smith, who had left Pittsburg after high school and returned to work for the chicken company but now serves as a director on Pilgrim Bank, in which Bo Pilgrim is the principal shareholder. "They are the community."

There's no disputing that "chickens support this county," said Tom Cravey, 62, the Camp County judge who worked in Pilgrim's Pride hatcheries and other company facilities for 23 years until going into law enforcement and then politics. "Their impact is far-reaching."

Hitting close to home

In recent weeks, more than 330 local workers have been let go, and a number of others have seen their hours cut, putting a further damper on Pittsburg's holiday season.

After the bankruptcy filing, the chief executive and chief operating officers were fired but, respectively, left with $477,000 and $293,000 in severance payments and "consulting" fees.

Taking both positions is an industry veteran named Don Jackson, who will receive a $1.5 million salary, a $3 million signing bonus and a $2 million "reorganization" bonus. The latter is payable if he meets performance targets and if the company's restructuring doesn't result in the sale of the majority of its assets. He will also get 3 million shares of common stock, which were valued at $1.8 million on Dec. 24.

Another local concern is whether Camp County, the city of Pittsburg and the local school district will receive the approximately $2.3 million in taxes that is due from the chicken company on Jan. 31. In its bankruptcy filing, the company listed assets of $3.75 billion and a debt of $2.72 billion.

Spokesman Ray Atkinson told the Pittsburg Gazettethat the taxing entities will be paid. Pilgrim's Pride accounts for more than 20 percent of all local taxes.

"We believe they will," Cravey says of Pilgrim's making good on its $594,000 county property taxes, although no one in the company has spoken directly to him. "They're not delinquent until Jan. 31, when they usually pay. It's still early to make any assumptions."

Bankruptcy experts say that timing could be everything. But Cravey insists that Camp County (population: 11,500) has sufficient reserves and taxes from others to see it through.

Checks and prayers

Bo Pilgrim has long been the company's public face, appearing on TV commercials in a black pilgrim-style hat and holding a hen while promising never to sell you a yellow chicken. A giant fiberglass bust of the poultry mogul in his trademark 17th-century headgear crowns a pavilion outside a sprawling chicken distribution center here.

The public face was sometimes an open embarrassment. When he wanted state senators to vote a certain way on a workers' compensation bill, Pilgrim didn't outsource to an Austin lobbyist.

Just off the floor of the state Senate, he personally handed out envelopes stuffed with $10,000 checks in 1989, when it was still a legal practice to make such brazen overtures. In a 1993 interview with Texas Monthly, Bo denied he was bribing lawmakers, insisting the checks were just so many "campaign contributions."

Friends say Bo Pilgrim has slowed down in the past six or seven years. Yet the self-made former billionaire has been steadfastly revered by Pittsburg, where he has taught Sunday school and built the landmark "prayer" tower and chapel on the main downtown shopping street, just down the road from Granny Y's and in sight of the First Baptist Church, where he worships.

A remarkable number of residents are convinced that he will weather the bankruptcy as he has past company crises and rebuild the chicken empire.

"If it goes down, it would be disastrous for us," said Ken Smith, his longtime friend. "But I think they'll pull it out."

Bottom line

That's if the bankruptcy court and debtors allow Pilgrim, now the "senior chairman," to have much of a say.

Perhaps too sensitive a topic to be publicly chewed over at Granny Y's or Herschel's, on the other side of town, is the Pilgrim family's future employment and side deals with a restructured company. Their relationships would make sticklers for corporate governance wince, but few if any shareholders have complained.

Every adult child of Bo Pilgrim is on the payroll. Lonnie Ken Pilgrim, the chairman, received $588,887 last year, Pat $343,735 and Greta Pilgrim-Owens $353,835. A spokesman did not respond to an e-mail asking just what posts the latter two hold.

Bo Pilgrim himself earns pay and benefits totaling $2.29 million. Last year, Pilgrim's Pride paid the family patriarch $885,262 for raising chickens on his personal farms -- way down from the $54 million he got in 2005 for chickens and another $51 million for baby chicks and feed. Those purchases plummeted after several Texas contract growers sued the company, claiming that Bo Pilgrim received preferential treatment. The company, while admitting the pay structure was fashioned differently, insisted he was not given better terms. The case has yet to go to trial.

The publicly traded company also pays Bo Pilgrim $33,000 a month for use of his private jet. One of his investments, Pilgrim Interests Ltd., received $3.5 million for debt guarantees in 2007. The same year, the company bought $429,000 in grain and promised to buy another $400,000 worth through September from his son Pat, who leases 1,700 acres of farmland from the company. In 2000, it paid $8.5 million to an unnamed Pilgrim son for his chicken litter collection service, according to federal filings.

One of Bo Pilgrim's favorite charities might suffer if a restructured Pilgrim's Pride takes a more secular approach to poultry processing.

The company pays Marketplace Ministries to place 170 full- and part-time chaplains at its units around the country, making it the biggest corporate client of the Dallas-based Christian charity, said Art Stricklin, Marketplace's spokesman. A Pilgrim's Pride spokesman referred questions on the contract's cost to Stricklin, who said that only his father, Chief Executive Gilford "Gil" Stricklin, could answer. The elder Stricklin did not return several calls.

Overextended

Even those sympathetic to Bo Pilgrim speculate whether his ambition to become the globe's biggest chicken producer, combined with painfully bad timing, led to the company's downfall.

"It was a perfect storm for economic crisis," said Packer, the Baptist pastor, who meets and prays with Pilgrim daily.

Packer, who studied economics at Howard Payne University, noted that heated demand for corn-derived ethanol sent chicken feed costs higher, which, with exorbitant fuel prices, crippled the company at a time when a glutted world market kept chicken prices below profitable levels.

Compared with Tyson and Sanderson Farms, two major regional competitors, "Pilgrim's was the least able to handle it because of the debt," he said.

That debt was heightened when Pilgrim's borrowed to acquire an Atlanta competitor, Gold Kist, for $1.1 billion in December 2006, making it the global leader in chicken parts. The wisdom of the costly purchase is now open to question. According to a recent federal filing, Pilgrim's has written down the value of its Gold Kist investment by $500 million.

"Having extended itself to buy Gold Kist, it had no equity to burn," said John Anderson, an agricultural economist with the Mississippi State University extension system. "And if you have no equity, you are in a serious, serious mess."

The Bank of Montreal has stepped up as lead lender to provide Pilgrim's with $450 million in debtor-in-possession financing to keep the wide-ranging company operating during the restructuring. Meanwhile, Pilgrim's Mexican operation -- that country's second-largest chicken producer -- was one of a few units not affected by the bankruptcy reorganization.

What it means

No doubt Bill Snyder, a $550-an-hour turnaround specialist from Southlake brought in before the bankruptcy, is scouring the assets to determine which can be liquidated for more operating capital.

Will the restructured company still need a five-story, 176,000-square-foot headquarters built three years ago to accommodate 600 workers?

It's valued on the tax rolls at $22 million.

"But who would buy it?" asks Patrick Smith, 48, a former Pittsburg City Council member, the son of Ken Smith and the unsuccessful Republican challenger to County Judge Cravey, a Democrat.

"What value is this building on Highway 271?" he said, referring to its relatively remote East Texas location. The potential white elephant, between Pittsburg and Mount Pleasant, is by far the most valuable commercial building in Camp County, with the Pilgrim's distribution center a distant second at $4.8 million.

Smith said he had long publicly warned civic leaders of the risk of putting too many chicken eggs in one basket.

"I hope this is a wake-up call for the community," said Smith, a home builder who teaches at two colleges. "The majority of people still don't think anything will happen to Pilgrim's, that there will still be a need for chicken. That may be the case. But I'm one of those people who say, 'Let's look at all the scenarios.'"

BARRY SHLACHTER, 817-390-7718

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