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Exhibit 2
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[THIRD POINT MANAGEMENT COMPANY L.L.C. LETTERHEAD]
September 8, 2000
Mr. William P. Stiritz,
Chief Executive Officer
Agribrands International Inc.
9811 South Forty Drive
St. Louis, MO 63124
Dear Mr. Stiritz:
Third Point Management Company L.L.C., as investment manager of Third Point
Partners L.P. and its affiliates has been a significant Agribrands shareholder
since March 1998, the time of the company's spin-off from Ralston Purina
Company. We recently added to our position following the announcement of
Agribrands' sale to Ralcorp, a company with which you are personally affiliated
as Chairman.
Make no mistake. Our recent purchases that have pushed us over the 5% threshold
are not a vote of support for the Ralcorp merger. On the contrary, we believe
that the transaction is not in the interests of Agribrands shareholders, has no
strategic purpose, and does not obtain full or fair value for Agribrands in
exchange for a change of control. And, lest you dismiss our efforts as those of
a quick-buck artist or pernicious arbitrageur, remember that we have been
patient shareholders for over two and one half years and only increased our
stake by 1% of the outstanding shares to have the opportunity to voice our
complaint in a securities filing where we believe our strong opposition will be
taken seriously and heard widely.
Based on the current trading level of approximately $41.00 per share (reflecting
the market's perception of the deal's value and 2 points higher than the
woefully inadequate $39.00 cash option offered for up to 20% of the outstanding
shares), you have offered a modest premium of only 14% over the closing price
$36.25 prior to the announcement and 23% below the price of $53 9/16 reached on
November 27, 1999.
Moreover, the current price represents only 2.9X Agribrands' Enterprise Value to
EBITDA and only 9.2X Prudential Securities estimated earnings for the Fiscal
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Year ended August 31, 00 and 7.9X next year's estimated earnings. These
estimates do not take into consideration the $10 million surrender value of the
$102 million insurance policy taken out on your life, nor the potentially
sizeable award Agribrands might be entitled to as part of the class entitled to
the $242 million settlement of class-action claims against Roche Holding AG and
five others in connection with their price fixing of vitamins used to fortify
animal feeds and processed foods.
Notwithstanding the existence of a "fairness opinion", we believe that there is
nothing fair about either the price or the manner in which the sales process was
conducted. We have contacted several competitors that one could consider
potential buyers. They were aware Agribrands had sold itself to Ralcorp, a
private label cookie and bisquit manufacturer but they, as we, could not
understand the strategic sense of the deal. Furthermore, none of the executives
we contacted had been made aware that Agribrands had been put up for sale, nor
had they had the opportunity to bid against your affiliate, Ralcorp, for control
of the company, its $160 million cash balance, and its $90 million per year
EBITDA stream.
In addition to strategic buyers and in light of Agribrands' steady cash flow,
low capital needs and hefty cash hoard of $14.00 per share (net of debt and
unfunded pension liabilities) we believe that Agribrands could make an
attractive acquisition to a financial buyer in significant excess to the
acquisition price offered by Ralcorp.
We also believe that a number of financial restructuring scenarios would deliver
immediate superior value to Agribrands shareholders. Such restructuring
transactions include, but are not limited to, a leveraged recapitalization,
Dutch tender offer, or special dividend. Instead, you and the board have
squandered the opportunity to realize value for your shareholders by entering
into this ill-conceived and unfair transaction with an affiliated company with
which there is no strategic rationale.
The transaction raises further concerns about your exercise of fiduciary duty;
this is not the first time that you have apparently put your personal interests
above those of the shareholders whom you serve.
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Specifically, during fiscal 1998 you were awarded options on 1.0 million shares,
or over 10% of the company's float, based on today's share count. You were then
awarded options on an additional 500,000 shares (another 5% of the company
equity) in the beginning of fiscal 1999 after concerns about the Asian crisis
drove the share price down to a temporary panic level of $21.00 per share. This
award was granted just prior to the announcement on September 25 of the
companies authorization of a 2 million share buy back and prior to the October
28 announcement of the quarterly results for the period ended August 28, 1998 in
which the company substantially beat analyst expectations.
One can only assume that you had prior knowledge of both these events when you
were awarded the second round of options. While the proxy statement makes
reference to external compensation consultants and the use of a Black Scholes
model, neither of these safeguards could have been factored in the market panic
or the information that you likely possessed when you chose to set the option
exercise price.
During this period in which you have been so richly rewarded, Agribrands shares
have been basically flat, rising a meager 1/2 point from the 35 3/4 close on the
March 27, 1998 spin date to 36 1/4 on the day prior to the announcement of the
sale to Ralcorp. At today's price the shares have increased about 15%
(annualized rate of return of about 5.8%) over the 2.5 year period. During the
same period, the S&P has risen 36.4% (13.5% annualized) and the publicly traded
comparable company, Nutreco Holding N.V., has risen 64.2% (22.4% annualized).
Yet, you are quoted in the company press release of August 8, "The respective
spin-offs of Ralcorp and Agribrands from Ralston Purina Company have now been
successful." But by whose measure? In my business, fund management, we are
measured by the rate of return earned for our investors. (Our returns have been
quite good, averaging over 35% per annum for over five years notwithstanding the
drag from our investment in Agribrands.) From such an investor's perspective the
performance of Agribrands and Ralcorp has been dismal. The propitious timing and
pricing of your option grants have yielded you a profit of over $14.0 million.
It would appear that the success you speak of is your profits on your options,
not that of your shareholders.
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Your strategy of combining these two businesses is indefensible in every way.
There are no possible strategic synergies or benefits to this transaction. In
particular this transaction does nothing for Agribrands shareholders. It appears
to us that this transaction enables Ralcorp and management to use Agribrands'
considerable cash balance and ongoing cash balances to finance the growth in
Ralcorp's business that has no connection with Agribrands' business. We are
convinced that the value of these assets can be realized in a much more
efficient way. We have no interest in allowing you to strip these assets at an
unfair price to use as you see fit. Agribrands' cash and cash flows belong to
Agribrands' shareholders. They are not to be used to serve the empire-building
desire of Ralcorp's management team.
Your track record in taking steps to enhance shareholder value has been
singularly unimpressive. You have not demonstrated the ability to significantly
increase the value of either of these companies as independent concerns. Why
should shareholders conclude that a merger of these two companies, with no
synergies between them, under your continued leadership, would somehow improve
their position?
We are not alone in opposing the merger with Ralcorp. Based on our informal
conversations with other large shareholders who share our frustration, we
believe that it is unlikely that you will obtain the required 2/3 majority to
approve the transaction. Furthermore, we have had informal discussions with
investment bankers and potential strategic acquirers. We believe that there will
be significant interest in Agribrands if it were put up for sale in a fair and
open process. This interest may materialize even if such a process were not
initiated. Accordingly, we urge you to waive the $5.0 million break-up fee, to
officially put the company up for sale and to consider other alternatives such
as an LBO or recapitalization of the Company in order to maximize shareholder
value.
Very truly yours,
/s/ Daniel S. Loeb
Daniel S. Loeb,
Managing Member
