Kansas City, Mo At the urging of creditors, Farmland Industries Inc. has withdrawn a $300,000 incentive it offered to a potential buyer of the bankrupt cooperative's refinery and fertilizer plant in Coffeyville.
In a letter of intent filed last week in U.S. Bankruptcy Court, Farmland disclosed an agreement to cover up to $300,000 of the costs that Pegasus II LLP would incur to evaluate the Coffeyville operation.
The agreement also gave Pegasus -- an investment group based in Cos Cob, Conn., -- exclusive rights to negotiate a deal with Farmland for 45 days.
The payment offer was abandoned after lawyers for Farmland's creditors objected, suggesting during a bankruptcy court hearing Tuesday that the arrangement could discourage other potential buyers.
At least two large energy companies besides Pegasus have expressed interested in buying the Coffeyville operation, according to documents filed in bankruptcy court.
One of the companies, Dallas-based Alon USA, is a subsidiary of Alon Israel Oil Co. and markets Fina gasoline. The other is Carlyle Development Co., which operates a large petroleum pipeline distribution system in the Midwest.
Larry Frazen, Farmland's lead bankruptcy lawyer, said Pegasus believed it needed the exclusivity agreement to prevent Farmland from striking a deal with someone else while Pegasus was investing its time and money in evaluating the facilities.
Though other companies have shown interest in the refinery, Frazen said Pegasus was the first company to offer to buy both the refinery and the fertilizer plant. Though the two might be sold separately, Farmland said they were worth more to creditors if sold as a pair.
Bankruptcy Judge Jerry Venters approved Farmland's letter of intent with Pegasus but ruled that if the companies reach a purchase agreement, other interested companies would get a chance to outbid Pegasus.
Once the largest farmer-owned cooperative in North America, Kansas City, Mo.-based Farmland has reached agreements to sell nearly all its major assets since filing for Chapter 11 bankruptcy in May 2002.
Farmland announced a deal two weeks ago to sell its Farmland Foods pork processing business to competitor Smithfield Foods for $363.5 million.
On Tuesday, Venters set Sept. 12 as the deadline for competing bids for the pork processing business. If any bids are filed, an auction will be before Oct. 13, Frazen told Venters. A competitor would have to bid at least $374.5 million, $10 million of which would go to Smithfield as a breakup fee.
By the end of today, Farmland is expected to file a plan that would estimate how much it expects to repay to unsecured creditors who are owed about $1 billion.