US: Tyson Foods Shares Fall Over Collusion Lawsuit Worries

Shares in Tyson Foods, the largest meat processor in the US, fell sharply on Friday after a brokerage firm raised worries regarding an ongoing class-action lawsuit against the company.

The lawsuit, filed last month, alleges that Tyson and rivals Pilgrim’s Pride, Sanderson Farms, and Koch Foods have colluded since 2008 to reduce production of broiler chicken, thus pushing up prices. The companies have denied the allegations.

However, an analyst at Pivotal Research Group said the lawsuit was “powerfully convincing”.  While the report insisted it was not commenting on the alleged collusion, the note added: “Our thesis is that the class-action suit has merit and will lead to intense scrutiny of the broiler sector. We have long wondered how an industry marked by such volatility and lack of discipline could morph to a highly disciplined industry where production remains constrained and pricing remains high”.

The brokerage downgraded Tyson’s stock to ‘sell’ (from ‘buy’) and lowered its price target to $40 (from $100).  The analysis sent shares of Tyson falling by 11.5% at one point before they ended up down around 9%, while shares of the other firms were down around 4%.

Tyson reacted to the report, noting: “While we don’t normally make substantive comments regarding pending litigation, we dispute the allegations in the complaints as well as the speculative conclusions reached by the analyst, and we will defend ourselves in court. Contrary to what the analyst assumed, we have not made any changes to our business practices in response to the complaints.”