Smithfield Foods Inc. yesterday reached a tentative agreement to acquire Baltimore-based Esskay, one of its major competitors in the Middle Atlantic states, for about $1.9 million.
A Baltimore City official expressed surprise at the announcement because he believed Esskay had obtained the first part of the financing it sought for a new processing plant in East Baltimore. Another source disagreed, however, attributing the deal to Esskay's inability to get all the funds it needed.
Esskay, the financially beleagured Maryland meatpacking plant whose real name is Schluderberg-Kurdle Co. Inc., laid off 43 employes Friday, and sources close to the company said last night that about 29 more will be laid off this week and that more will be fired by October. The company employs about 520 union workers and more than 100 nonunion and managerial personnel.
Esskay's board of directors announced yesterday that it has given preliminary approval to the transaction, under which Esskay will give 40,000 shares of voting common stock to Smithfield for $20 a share in cash, and 60,000 shares of nonvoting common stock currently outstanding for $18 a share in cash. Oustanding preferred stock would not be affected by the proposed transaction.
"If the voting stockholders approve, Esskay will become a wholly owned subsidiary of Smithfield," said Aaron Trub, vice president and treasurer for Smithfield Foods in Smithfield, Va.
Last fall, unionized workers at the 126-year-old firm agreed to contract concessions after Esskay threatened to close or move out of state. Esskay executives said in February that the company would remain in Baltimore instead of moving to Indianapolis, as previously announced, if it could obtain $15.5 million to finance the new processing plant in East Baltimore.
Hans Mayer, Baltimore's deputy secretary of economic community development, who helped to negotiate a line of credit of approximately $5 million -- the first phase of the needed financing -- from Maryland National Bank, said that the $5 million still is available. "They certainly never indicated to me that there was a problem with the bank financing," Mayer said.
"Esskay has had a lot of financial troubles, but we've been able to do well with other companies that have had financial troubles," Trub said. "We feel Esskay is a good fit for us."
Smithfield officials said they plan to keep a substantial part of the Esskay operation in the Baltimore area. Representatives of Local 27 of the United Food and Commercial Workers, Esskay's largest union, could not be reached for comment.
The tentative deal will be submitted to the holders of Esskay voting common stock for approval. Smithfield officials said the entire transaction is expected to take between 30 and 60 days to complete.