Agribusiness entrepreneur Frank Tiegs is expanding his Northwest food processing empire with the planned purchase of most of the assets of the NORPAC farmers’ cooperative for about $155.5 million.
The transaction is expected to close in October as part of NORPAC’s Chapter 11 bankruptcy filing, which will allow the company to remain operational while restructuring debt.
Tiegs, whose Oregon Potato Co. is acquiring NORPAC, said he was drawn to buy the processor due to the “premium” green beans grown in the Willamette Valley, as well as the broccoli, cauliflower, zucchini, squash and other crops produced in the region.
“We’ll probably add back some of the crops they discontinued and maybe some additional,” Tiegs said. “We will try to buy as much as we can and process as much as we can and be a grower-friendly company.”
The Willamette Valley Fruit Co. in Salem, Ore., is already one of the 15 processing companies owned by Tiegs and he expects to use NORPAC’s facilities to process blackberries, Marionberries, blueberries and strawberries grown in the valley.
“I’m already in the Willamette Valley and I want to expand my fruit business,” he said. “It’s probably as much a fruit play as a vegetable play.”
Potentially, the amount of strawberries grown in the area could increase as result of the deal, “as long as labor will allow it,” Tiegs said, referring to the limited availability and cost of farm workers to pick the labor-intensive crop.
The purchase will include NORPAC’s Oregon facilities in Brooks and Salem as well as its plant in Quincy, Wash. It will also include the cooperative’s facility in Stayton, Ore., though Tiegs doesn’t plan to keep it operating.
Tiegs said he can move equipment from the Stayton facility to other plants and use surrounding farmland to plant berries. His longer-term plans for the property will depend on environmental evaluations of it.
As a farmer with more than 100,000 acres under cultivation, Tiegs said he’s looking forward to working with the cooperative’s members to turn the business around.
“I wouldn’t be doing it if I didn’t think it would work fine,” he said.
More than 140 farmer members own the NORPAC cooperative, which was founded in 1924 and is the biggest frozen fruit and vegetable manufacturer in the Northwest with about $310 million in annual sales.
The company contracts with 220 growers across more than 40,000 acres in the region and has about 1,125 full-time employees and 1,100 seasonal employees during peak harvest season.
Shawn Campbell, NORPAC CEO, said the co-op was pleased to find a partner who “shares our vision and will ensure the best possible future for our growers, employees, customers and partners.”
“Our business operations will continue as normal through the bankruptcy process,” Campbell said in a statement. “Our 2,700 employees will continue to receive their wages and benefits, our vendors and suppliers will be paid in the ordinary course of business going forward, and our customers can continue to rely on us for unparalleled produce and products thanks to our family of farmers.”
Dave Dillon, president of the Oregon Farm Bureau, said bankruptcy filing will have a “profound impact” on co-op members.
“In the immediate term, getting paid for delivered or contracted crops is a huge concern,” Dillon said. “In the near-term future, the potential write-down of growers’ retained earnings could drastically change farm balance sheets and affect operating loans.
Dillon said NORPAC has been a vital marketing tool for Oregon producers for decades.
“If we don’t have a viable co-op, it will drastically change the ag landscape in Oregon,” he said. “Oregon Farm Bureau is greatly concerned with the well-being of our member families. We are marshaling resources we hope can be helpful to those affected by this bankruptcy.”
In a traditional, patronage-based farm cooperative, growers receive part of their payment for crops and the rest as “retained earnings,” which act as their equity or ownership in the company, said Robin Cross, an economics professor at Oregon State University who has studied co-ops. However, Cross said he’s unsure whether NORPAC has retained this traditional model or modernized it in recent years.
When assets are sold in bankruptcy, the money is first used to repay secured creditors who have collateral for loans, then unsecured creditors according to their level of priority, said Andrea Coles-Bjerre, a University of Oregon law professor specializing in bankruptcy.
Equity owners are the lowest priority for distribution of proceeds, if any are left after creditors are paid, she said.
According to bankruptcy documents, Oregon Potato Co. is expected to “pay all amounts due to growers for the 2019 crop” and NORPAC believes the sale “will generate funds sufficient to pay all secured and priority claims and leave sufficient funds for a meaningful distribution to unsecured creditors.”
NORPAC owes between $100 million and $500 million to between 5,000 to 10,000 creditors and owns assets of $100 million to $500 million, according to its bankruptcy petition.
NORPAC hired a financial advisory company in May 2018 to explore its “financial and strategic alternatives, including purchase, merger, consolidation, reorganization, or other transaction of a like nature,” according to a bankruptcy document. That financial adviser contacted 166 potential investors, which generated four letters of interest and led to “extensive negotiations” with a “highly qualified and motivated party” that ultimately fell through in June, the document said.
In June, NORPAC hired a restructuring company that assisted in “almost six weeks of negotiation” that concluded with the asset purchase and sale agreement with Oregon Potato Co., according to bankruptcy documents.
NORPAC has a $124 million credit agreement with CoBank, an agricultural lender that has collateral in “substantially all assets and property” of the cooperative and its subsidiaries. The company has an “immediate need” for up to $15 million” from CoBank to remain operational as a going concern and close the transaction, according to bankruptcy documents.