Allen’s closing will impact community

Laura and Roland Hill have been growing for Allen Family Foods for years, but with the local company now in bankruptcy, the Hills had to explore new options.

“We’ve been fortunate to be picked up by Mountaire,” said Laura Hill of Angola. “I’m sure there will be growers out there that will not be picked up, and you can’t help but feel for them.”

Allen Family Foods, with facilities in Harbeson, Seaford, Maryland and North Carolina, filed for bankruptcy protection June 9 in New Castle County.

The company plans to reorganize to sell off parts of the operation and recuperate some debts. A branch of Mountaire Farms of Delaware Inc. is bidding on several Allen locations, but the contract will not be finalized until approved by bankruptcy court. More than 2,000 employees could lose their jobs by the end of July if a buyer does not start operating the Allen facilities, officials say. Allen plans to keep its farm branch of the company, while selling off other assets.

“There’s a big human factor here with people losing jobs,” said Hill. “Rumors have been flying for awhile within the poultry industry; when push came to shove, I wasn’t expecting bankruptcy. The biggest impact locally is with grain farmers because anytime you lose an outlet to sell your grain, the less bargaining power you have.”

Mike Tirrell of Mountaire Farms said a new bidder could come in and out-bid Mountaire before the contract is finalized for the company to take over Allen locations.

Mountaire has submitted a purchase agreement for the Seaford hatchery, Dagsboro hatchery and Seaford feed mill, as well as the Seaford offices; Cordova, Md. processing plant; Harbeson processing plant and JCR enterprises in Linkwood, Md.

“We only have an asset-purchase agreement, so we are waiting for approval,” said Tirrell. “The good news is we’re hiring people right now in Millsboro and Selbyville locations because we are expanding. We will also need additional growers for our expansion.”

If outbid, Mountaire will still expand, just not as quickly as they would if their bid is accepted, Tirrell said. He said Mountaire does not know how many additional workers would be hired if the Allen purchase goes through.

“The entire industry is facing huge challenges for the cost of grain,” Tirrell said, referring to the area's need to bring in grain from the Midwest because farmers here cannot supply enough. “The Eastern Shore area is particularly tough because of the nature of grain purchasing and the fact that most grain has to be brought in either by truck or rail. It’s very competitive here.”

While Mountaire is also facing challenges with the high cost of grain, Tirrell said the company believes the investment in an expansion now will pay off later when grain prices go down.

“Presently things are very tough, but we believe it will improve and will justify our investment today,” Tirrell said.

State couldn’t help

By the time Allen offiicials approached the state, they were already planning to sell parts of the company in an effort to keep other parts afloat and pay off debts. The company wanted to use to state money to keep going until a sale could be finalized, but state officials did not believe the plan would be a good investment of funds.

Alan Levin, director of the Delaware Economic Development Office, said representatives from Allen Family Foods approached his office two months ago about a possible loan to stave off closing.

“This would have been an unsecured loan, so there was no security, and financially the company was in a precarious position, so we had concerns the state might not get its investment back,” Levin said. “The financial difficulties are a result of the high feed prices, and unfortunately the price of chicken has not risen to compensate, so the profit margin has shrunk significantly. Most of the corn is going into ethanol, for gasoline production.”

Levin said state officials searched for other lenders and potential buyers to try and help Allen stay afloat, but because of the lack of security, a loan agreement could not be reached.

“Allen will be going through reorganization. They tried to sell off operations, but things didn’t pan out, so they reached out to lenders for cash to operate,” Levin said. “They have an agreement in principle with Mountaire for an asset purchase, but that is just for assets, not debts. The debts will stay with Allen’s, so there is a possibility they will break up the company to sell by portions in an effort to get more money for it.”

Levin said all chicken producers are feeling the pinch with high grain prices, but he said other than Allen, other producers appear they will make it through these rough times.

“We’ve been in contact with other major producers, but I don’t feel they are in the same position as Allen,” Levin said. “But there is a ripple effect for growers, farmers and it goes on and on. Mountaire has presented an opportunity and while it won’t fill the entire void, it does fill part of it. Our hope it to work to find others to buy up the slack and see what we can do. It is not as dismal as it could have been.”

According to court documents filed in bankruptcy court by Allen Family Foods, the company is in default of more than $520,000 in loans; plus, $82 million owed to Mid-Atlantic Farm Credit.

In a meeting of Gov. Jack Markell, Levin and Sussex County lawmakers June 14, legislators expressed concern that Allen’s troubles were not more widely known prior to the bankruptcy filing.

"Our focus needs to be and is on how to help the workers. Companies interested in Allen Foods will find in Delaware a state that understands and supports this industry," Markell said. "The meeting with the legislators was a chance to discuss our shared commitment to the industry and bring them up to speed on our discussions."

Rep. Ruth Briggs King, R-Georgetown, said she was shocked to hear of the company’s troubles. She said she heard about Allen seeking bankruptcy protection June 9, during a press conference announcing a new company moving to New Castle County with the support of state officials.

“(During the announcement), all I could think was what have we done for Allen?” King said. “I am trying to talk to the people at Allen to find out about employees, but I am very distressed to learn after the bankruptcy filing that Allen asked for assistance. I want to find out more on why they weren’t given any opportunities.”

King said she respects all Allen Family Foods has done for the community, specifically in Harbeson, an area she represents.

“Allen has been a good citizen to Delaware for many years,” King said. “It is a family business that was a very good employer, and it is distressing to not know what the future holds. To me, legislators should have been in on deciding a way to help the future of this company.”