The Meat Racket: The Secret Takeover of America's Food Business

by Christopher Leonard

  * * *

  Don Tyson’s obsession with fast food made him a difficult man to locate. He often couldn’t be found at his desk, or anywhere at company headquarters. He disappeared for days on end, taking his private airplane to destinations he kept to himself. Only Tyson’s inner circle of advisors, men like Joe Fred Starr and Jim Blair, knew he was spending an inordinate amount of time in Illinois, where McDonald’s was based. Don Tyson had an obsession with McDonald’s that seemed entirely outside of rational proportion. He had made a personal fortune by specializing in chicken production and nothing else, and yet he spent several years of his life hounding a hamburger company that had never sold so much as a drumstick. Don Tyson called on McDonald’s with all the grace and restraint of a magazine salesman going door to door in the rain. He set up meetings with buyers and executives, telling them they were missing the boat on chicken. Chicken could be served just like hamburger—and at half the price, he said. Chicken could be put into sandwiches, or served in boneless patties. When the McDonald’s executives and buyers politely thanked him for his time and sent him home, he called back to set up another meeting. He took his jet to trade shows and industry meetings. He became an evangelist for chicken and its potential as a cornerstone of the fast-food menu.

  He also made it clear that Tyson, and only Tyson, could deliver millions of pounds of meat to a national food chain with an around-the-clock distribution system. His pitch was simple:

  — Look, we’ll dedicate a whole plant to your production. We’ll cost it out, where you give us a reasonable margin. And we’ll just run your product. We can do this cheaper for you. And because it’s a dedicated plant, you can look over our shoulder on quality control all the time.

  Back in Springdale, Don Tyson focused almost exclusively on the McDonald’s account for long stretches of time. As he explained it to Jim Blair and Joe Fred Starr, Don planned to piggyback on McDonald’s franchise system to bring processed chicken to every street corner. In his estimation, McDonald’s had the best distribution system of any fast-food franchise in the country, and that’s what drew him to the company. Rather than deliver Tyson’s product to several depots of refrigerated warehouses, Tyson could deliver to just one location: the McDonald’s distribution center. Then the restaurant chain would use its own trucks to ship the product out to its network of stores.

  It only took fourteen years for McDonald’s to come around. But eventually, the company called Tyson and said it had a product deal in which he might be interested. McDonald’s had developed a chicken product that would fit in with its menu of sandwiches and French fries that were easy to eat on the run. It wasn’t just a chicken burger but a whole new kind of product. McDonald’s food scientists had figured out how to mince chicken breast meat, mix it with stabilizers and other ingredients, then partially fry it in a special breading that enveloped the meat. Customers could hold a piece in their hand and eat it out of a box. It was dubbed the “McNugget.”

  As Don Tyson promised, his company retrofitted a plant in Nashville, Arkansas, to make nothing but the McNugget. By 1983 Tyson was supplying the McNugget to McDonald’s stores around the country. Don Tyson had finally found a chicken product whose price didn’t fluctuate with the wholesale market for fresh chicken. It freed Tyson, at least in part, from the vicious commodity price cycle that tortured the industry.

  As Don Tyson had envisioned, chicken products slowly began to creep onto menus across the country. Eventually, chicken would overtake beef and pork as the most-consumed meat in America.

  * * *

  Although he didn’t know it, Haskell Jackson hired his replacement when he brought on board a bright young accountant named Gerald Johnston. Johnston came to Tyson with one mission: to drill down into Tyson’s business operations and get a clearer picture of the company’s costs. To do that, he invented a new accounting system that went beyond anything Jackson had thought up. It wasn’t enough to know how much Tyson spent to grow and process each chicken. Johnston figured out how much it cost to produce each piece of chicken Tyson sold. He broke down the bird into its component limbs—the thigh, the wing, the breast, and the waste products—and developed a way to track the cost of each piece of meat. The cost of producing the thighs and wings was just a subsidy of sorts to get the money-rich breast meat to market.

  Don Tyson was impressed with Johnston’s new cost models. He began inviting Johnston to the Monday afternoon meetings, even though Johnston was technically far too low on the totem pole to warrant it. Don often quizzed him about the company’s costs during the sessions, and he asked him to explain his cost models to the other executives. With his square jaw and easygoing demeanor, Johnston had a sociable air about him that Jackson lacked. Jackson was pleased his new hire was working out so well.

  * * *

  The competition among the executives under Don Tyson had grown fiercer with each passing month.

  Don asked Buddy Wray and Leland Tollett each to look over an impending acquisition and tell him their thoughts on it. It was clear he was judging their reasoning ability, as much as he was looking for advice. Don had asked Jackson to hire an architect to design Tyson’s new headquarters building, and Jackson had gotten a great design that had every specification Don had asked for. Don seemed pleased with it. Then Don selected Joe Fred Starr as the general contractor for the project, which came as a surprise to Jackson. Starr gutted the design Jackson had submitted, cutting the project’s costs and saving thousands by using cheaper building materials and lighting. Don went with Starr’s plan, paying him a bonus for saving money on the project. When the building was almost completed, Don took a tour and exploded at Jackson, who had come up with the idea to put nameplates on each office door.

  — Why are there nameplates on the doors? I told you we don’t have goddamn nameplates on the doors here!

  Jackson took the nameplates down. He didn’t ask why, but he figured they carried an air of formality or presumption that Tyson objected to.

  Soon Jackson discovered his responsibilities were being shifted to others. He was being sent on the road most of the time, visiting new poultry complexes as Tyson bought up its competitors. Jackson helped get the accounting in order at each complex, making it conform with Tyson’s system. He spent weeks on the road, away from his wife and kids. He knew the work he was doing was important to the company, but he also suspected he was put on the assignment in an effort to drive him into the ground, or least keep him out of the office. On both counts, it was working.

  * * *

  Haskell Jackson liked to play basketball with Gerald Johnston and other Tyson managers at a court in downtown Springdale.

  One evening, Jackson grabbed a pass from Johnston and began sprinting down the court, when he felt a sharp pain, as if a knife had been thrust into his stomach. Jackson went sprawling onto the floor, and he lay their doubled up in pain. He thought he might be having a heart attack, but at the hospital he was relieved to find out it was only an ulcer. When the doctor asked Jackson if there were any particular stressors in his life, Jackson might have laughed if the pain wasn’t so bad. Jackson’s whole life was a stressor. He spent days on end driving from plant to plant, putting in untold hours of overtime for Tyson, just to feel like he was still falling behind. At that moment, in the hospital, Jackson came to the conclusion that he would most certainly die if he kept working for Don Tyson.

  Not long after that, Jackson noticed a job opening for a senior accountant at George’s Poultry, one of Tyson’s smaller competitors in Springdale. He jumped at the job. In his last days at Tyson’s Foods, he wondered if he should say something to Don. They had spent eighteen years together, building this company from a tiny operation on the wrong side of downtown Springdale. Jackson decided against saying anything, figuring Don would approach him before he left. But on his last day at the company, in 1978, Jackson left without so much as saying goodbye to Don Tyson. And he never spoke to him again.

  * * *

  After Haskell Jac
kson’s departure Gerald Johnston rose through the ranks and eventually became chief financial officer. With his new title, Johnston’s role at the company changed. In essence, he went from controlling costs to raising cash for Tyson’s expansion. This wasn’t a matter of simply attending road shows and attracting money from investors on Wall Street, although he did that too. To function day-to-day, Tyson needed bank loans and revolving lines of credit, but most institutions were still wary about lending to chicken companies. Put simply, Tyson Foods was a strange hybrid, part factory, part farm, and bankers didn’t know what to make of it. What little track record the industry had showed it was still wildly volatile. When Johnston took over as CFO, he was shocked to discover that Don Tyson personally covered millions of dollars of the company’s debt just to make banks willing to loan to the company.

  That changed during the 1980s, in part thanks to Tyson’s neighbor to the north, the retailer Wal-Mart in Bentonville. Sam Walton’s rural discount chain was growing at a remarkable pace, opening new stores across small-town America, and his business drew a steady stream of New York and Chicago bankers who were hungry to loan Wal-Mart money. Johnston made sure to catch these bankers while they passed through town. He set up meetings and explained to them why Tyson was a safe bet for their money. The company wasn’t a farming operation anymore but was more like an appendage of big retailers like Wal-Mart and restaurant chains like Wendy’s and McDonald’s. As long as those companies sold food, Tyson would be in business. The company worked backward from the deals it forged with these national suppliers, giving Tyson’s farms and slaughterhouses a predictable cash flow.

  Johnston became more proficient at his sales pitch, and he helped raise millions to fund Tyson’s expansion. With each new loan he got, more banks became interested in the business, and soon he had loan officers competing against one another to lend Tyson money at the cheapest rate.

  Don Tyson was happy with the performance. He already had big plans for the money.

  * * *

  Jim Blair didn’t want to raise unnecessary attention. The Fayetteville attorney made a few discreet phone calls, worked some personal connections, and quietly arranged to buy a $10 million bond note that was owned by the investment firm Stephens Inc., in Little Rock.

  A bond note is a form of corporate debt, and in this case the $10 million in debt had been borrowed by Clift Lane, a poultry magnate from central Arkansas. In all likelihood, Stephens was more than happy to unload the debt at that point, in the early 1980s. Lane was looking like a shakier borrower by the day as his company foundered, due to weak sales and high interest payments. Lane almost certainly had no idea that Blair was buying up his debt, but he would find out soon enough. Blair handed over the note to his biggest client, and Lane’s most hated rival, Don Tyson.

  Tyson had cajoled Blair into becoming general counsel for Tyson’s Foods, a high-pressure job Blair was hesitant to take. He didn’t need the money, having become independently wealthy by 1980 from a series of shrewd stock investments. In spite of his personal wealth, he found himself working far more than he wanted to on the Tyson account. Blair had a job that was never done, and to call him Tyson’s general counsel was to miss his larger role at the company. He didn’t just handle lawsuits or regulatory matters. He was more like a well-trained attack dog, with a deep and creative understanding of U.S. law. Don Tyson kept him on a short leash.

  In a typical exchange, Don once complained to Blair that a small supplier was giving the company trouble. Jim was quick to give his advice.

  — I’ll put him out of business for you, Don. Just give me ninety days.

  Don declined. He considered the supplier a personal friend. So Blair took the easier path and simply wound down Tyson’s business with the supplier rather than push the man into bankruptcy.

  During the 1970s and 1980s, Tyson kept Blair at his side for a series of hostile acquisitions. It took more than a lawyer to get these things done. It took a fighter who was equally conversant in securities law, bankruptcy law, contract negotiation, and antitrust regulations. Jim Blair was the rare man who fit the job.

  Tyson’s model to “expand or expire” became an intrinsic part of the company’s operations. The poultry business was still defined by cyclical market swings when prices would rise, production would increase, and then prices would inevitably crash. When the business went into a slump, people like Don Tyson and Clift Lane went on buying sprees, snapping up smaller and weaker competitors. Then the survivors reaped even larger profits during the next upswing and were ready to acquire more companies during the next crash. All the while, the overall size of the industry kept expanding, dominated by larger and larger companies at the top.

  Don Tyson explained it to Jim Blair.

  — Companies come and go, but you’ll notice that the chicken plants never actually close. They just paint over the name on the front of the building, and business keeps going under new ownership.

  So it was that in the early 1980s, Don Tyson employed Jim Blair to go after Clift Lane’s crown jewel, a high-tech chicken-processing company called Valmac Poultry. Valmac processed about 153 million birds a year, just slightly less than Tyson’s Foods. Valmac was among the best companies in the industry, but Lane had made a serious miscalculation when he borrowed millions to expand. The poultry down cycle lasted longer than he thought, and Lane was having a hard time paying off the debt. Don Tyson, having followed his father’s strict rules for limiting debt during the upswing, was ready to buy Lane out.

  The fight to take over Valmac wasn’t a business dispute; it was a duel of vanities between Tyson and Lane. Both men had built multimillion-dollar empires. Both got cocky about their ability to survive the downswings of a tough business. Both had built brand-new office buildings in their small hometowns, Lane in the central Arkansas town of Grannis, and Tyson in Springdale. Lane wasn’t about to see his prized possession get painted over with Tyson’s name. Years later, Clift Lane said in a separate lawsuit that he would have rather seen his company go out of business than go to Don Tyson.

  When Lane refused to sell to Don Tyson in 1982, Blair got creative. He bought the $10 million bond note, which was backed by Valmac’s stock. Clift Lane quickly discovered that not only did he owe an unholy amount of money, but he now owed it to Don Tyson. And Don Tyson was about as gracious about the debt as Lane expected: He immediately tried to foreclose on him. By calling in the loan, Don Tyson would win ownership of the stock that backed it, giving him de facto ownership of the company.

  Lane fought the foreclosure in court, then stealthily flew to North Carolina and declared bankruptcy, defaulting on the $10 million bond. Blair argued in court that Tyson should still have rights to Valmac, but Lane managed to sell the company out from under them to a Texas investment firm called Bass Brothers Enterprises in 1983.

  Don Tyson and Jim Blair had lost the battle for Valmac. It was a defeat that lasted all of thirty days. Don scrutinized the Bass brothers’ investments and then called Jim. He thought the Basses would sell Valmac for the right price.

  — You know, the Bass brothers are doing a deal with Disney, and they need money. They don’t know what they’ve got here. We better buy that before they know what they’ve got.

  Blair was stunned when Tyson told him the offer price: $30 per share. It was more than a third higher than what the Bass brothers had paid, and nearly double the price Tyson had originally offered.

  Blair thought the price was far too high, and it would mire Tyson in a money-losing venture.

  — Trust me. I know it’s worth more than that, Don Tyson told him.

  Not surprisingly, Bass Brothers Enterprises was willing to let Valmac go at the seemingly exorbitant price. Don Tyson and Jim Blair flew to Fort Worth to sign the papers, closing the deal in September 1984. Don excused himself from the meeting early, leaving Blair behind to iron out the details, and took his private plane for a flying tour so he could look down on the new Valmac plants he had just acquired.

&n
bsp; Shortly after the Valmac deal closed, chicken prices surged. The Valmac purchase paid for itself in six months. Tyson doubled its annual production and picked up a slew of new clients. (Valmac had specialized in selling chicken products that were partially cooked, which were ideal for fast-food restaurants.)

  Clift Lane eventually declared personal bankruptcy. Tyson bought the remainder of his poultry holdings. The former headquarters for Lane Poultry in Grannis sat empty. Tyson had no use for the building. Blair tried to donate it to the U.S. Forest Service, but the deal fell through. It wasn’t much of a concern, though, because Tyson’s Foods had what it needed: a brand-new network of poultry complexes.

  * * *

  Among Gerald Johnston’s more unpleasant tasks was firing other CFOs. As Tyson bought one company after another, it had no choice but to cut the senior management, an unenviable task that often fell to Johnston. He met with the CFOs, good guys, almost all of them, and knew he could have easily been in their shoes. He tried to let them down easy. And then, when they were gone, Johnston got to work.

  Johnston saw the same pattern in virtually all the companies Tyson acquired. On the upswing in the chicken price cycle, the companies got fat. They added staff; they bought coffee machines for the break room and upgraded equipment. Then, when the crash came—and it always came—they were caught flat-footed and had to shed jobs and cut expenses.