Tyson Goes Fishin' -- After Arctic Alaska Acquisition, Company Finds Seafood, Chicken Businesses Are Oceans Apart

Fish ain't chicken.

At least, not yet.

No one knows that better than Don Tyson.

Tyson has had fish on the brain for two years, ever since he paid about $212 million in cash and stock for Arctic Alaska Fisheries Corp., the troubled Seattle-based fishing company.

"We know that when we put down a baby chicken, that in seven weeks later we're going to have `X' pounds of chicken," said Tyson, chairman of the board of Tyson Foods Inc.

"Fish is different."

Tyson, who has built a $4.7 billion poultry empire on the backs of chickens, talked during a recent visit to Arctic Alaska's corporate office at Fishermen's Terminal.

He wore his trademark khaki pants and shirt, with "Don" stitched in red cursive letters above the shirt pocket. He is a compact man with the sunny-pink complexion of one who has vacationed well and moved at the highest levels of American business for more than 30 years. His khakis are a sort of corporate uniform (not in Seattle yet) that reminds employees they are all first-string players on the "Tyson team." On one of the fingers of his right hand, Tyson wore a gold ring the size of a Grade AA Medium egg yolk.

Not your everyday chicken farmer, Tyson, 64, is also a fellow-Razorback friend of President Clinton. That has prompted competitors in the Northwest fishing community to charge that he gets favorable treatment from the government bodies that regulate the North Pacific and Bering Sea fisheries.

A General Accounting Office investigation recently found that was not the case, but the investigation and speculation have obscured the ongoing challenge before Tyson as he attempts to repeat the success he has known in chicken with fish.

Tyson's textbook vertical organization, pieced together over six decades, allows him basically as much chicken as he wants. If you're like Tyson, and have money to build more hatcheries and processing facilities, the chickens will cross the road and plop right into your revenue stream. Chickens are obedient.

Fish are not obedient. You have to get in a boat and sail to deep water and catch the fish. Of course, fish are not exactly disobedient. They can be caught, and by the tons. But only with the expenditure of millions in capital and effort. Fishing boats also sink, and people die. Not so with the chicken business.

As anyone knows who ever has dropped hook into water, Don Tyson simply cannot have as much fish as he wants. Sometimes, basic biology carries the day: There is not as much fish in the sea as in previous years. The government also limits the catch. So Tyson cannot exert the control over fish production that he can over chicken.

Like a far-flung dot on an old imperial map, seafood so far remains an obscure outpost in the Tyson empire. It accounts for 5 percent of annual sales, which in 1993 exceeded $4.7 billion.

Strategically, Arctic Alaska is more important than its revenues would indicate. In corporate parlance, Tyson Foods aims to be the leading "center-of-the-plate protein provider." It's already No. 1 in chicken - by far. Its closest competitors are Brazil and China, the countries.

"We're the largest chicken folks in the world," said Don Tyson, who, like many Southerners, speaks through a smile. "Seafood was what we was missing. We had looked at Arctic Alaska for a couple of years."

Securities analysts and local fish-business executives suggest, however, that Tyson should have looked at Arctic Alaska for a couple more years. Regulatory problems, leftover liabilities and plummeting fish prices have combined to prevent the new subsidiary from becoming much more than a modest performer. Local fish-business people whisper about all those massive Arctic Alaska boats tied up around town.

"I can imagine," says a local executive who works for a competing fish-processor, "what those boys in Arkansas are thinking: `Here we thought we got the premier company in the business, and all we do is issue press statements saying, it happened before we owned the company, it happened before we owned the company.' "

Although it certainly is not solely to blame, Arctic Alaska has taken its toll on Tyson's profits.

Tyson took over Arctic Alaska exactly when the price of surimi - the pollock-derived paste used to make a host of seafood products, including imitation crab - began a two-year free-fall. Arctic Alaska and other fish companies found they were getting half the money for the product they derive from the most plentiful fish they harvest.

Last year's Midwestern floods played an even larger role in making 1993 a relatively tough year for Tyson. Those floods ruined croplands, squeezed grain supply and drove up the price of feed used to fatten Tyson's chickens, cattle and hogs.

Tyson's marketing and distribution prowess still helped the company post increased profits for 1993, but at the slowest growth rate in at least a decade.

Don Tyson, who spends vacations fishing for hard-fighting marlin, knows it requires strength and patience to reel in a formerly independent corporation, acquire it and immediately post Tyson-style profits.

"It's like making love," said Tyson, pumping his eyebrows and grinning at the other executives in the Fishermen's Terminal office. "Sometimes . . . it happens sooner rather than later, but sooner or later, it's going to happen."

In 1989, Tyson Foods nearly doubled in size when it paid $1.29 billion to take over Holly Farms, its chief rival in the chicken business.

Finessing the Arctic Alaska acquisition was not like swallowing a rival such as Holly Farms. Like a marlin tearing off an angler's line, the Arctic Alaska deal took Tyson in a fresh corporate direction.

"Fish are the last of hunted animals," said John McMillin, an analyst with Prudential Securities in New York. "It's the last of the great commodity ventures."

Using Tyson Foods' estimate that seafood sales account for 5 percent of the company's overall revenues, 1993 sales would have been $235 million. In 1992, seafood sales would have been $208 million. Tyson's seafood operations include not just Arctic Alaska, but those of Louis Kemp Seafood Co., a processor with plants in Olympia and Duluth, Minn.

Arctic Alaska's sales in 1991 - its final year as a separate company - totaled $224 million.

Tyson is short of its predictions for seafood sales, which it said would total $300 million by 1993.

"The changeover at Arctic from a company that emphasized its fishing talent to one that emphasized manufactured food products has not been easy," said John Bierbusse, an analyst with A.G. Edwards.

Still, after initial erosion, Tyson Foods stock has grown more valuable since the company bought Arctic Alaska. Shares traded at $17.50 a share the day the deal was announced. Shares recently traded at $20.12.

Two years ago, from Tyson Foods headquarters in Springdale, Ark., the original deal had to look good:

-- Arctic Alaska's fortunes had steadily grown since the company went public in 1987. That first year, its fleet numbered 10 vessels and its revenues were more than $71 million. By 1991, the fleet was 31 boats - including 12 factory trawlers - and annual revenues topped $224 million. Arctic's trawler fleet was four times as large as anyone else's. It also owned or had interests in four processing plants.

-- Arctic Alaska already had the vertical silhouette fancied by Tyson. It dropped nets into the water, processed fish and sold seafood in grocery stores under the "Arctic Ice" brand name.

-- Arctic Alaska's longtime involvement in the fishery also appeared to give Tyson a regulatory advantage. For years, the North Pacific Fisheries Management Council has debated a quota system that would favor companies with the longest histories in the business - companies such as Arctic. A few years ago, that debate seemed headed toward resolution.

The proposed quota system would winnow the trawler fleet, which has attracted too many vessels to sustain profitably. A deep-pocket company such as Tyson probably could corner a reliable segment of the resource.

Or so it all looked.

"I think Arctic got sold a bill of goods," said a local fisheries consultant. "Had they come to someone familiar with the prospects in North Pacific fishing, I think they might not have gotten into this."

Tyson Foods is on record as supporting the proposed quota system. That would allow Tyson to fish more economically and more safely. Instead of plunging into "derby-style" fisheries, which may last for only a few weeks, the fish companies could crew their vessels more efficiently and fish when conditions are best. But quotas, which probably appeared within reach two or three years ago, are now a much more remote possibility. The Seattle-based trawler companies, who favor the system, are outnumbered by the Alaska-based, shore-based processors, who oppose it.

It's difficult to say Tyson should have known that surimi prices would drop from more than $2 per pound to less than $1. Even the fish-business people who jab at Tyson acknowledge that many companies had leveraged the financing of their fleets against expected surimi profits.

Still, what company was better positioned to predict foreign markets? Arctic Alaska had been in partnership for years with Nippon Suisan Kaisha Ltd., a Japanese company that helps distribute surimi. Exports also constituted 48 percent of Arctic Alaska's net sales in 1991, according to Securities and Exchange documents.

Then there are the liabilities that made headlines. Tyson had to pay millions in connection with illegal-fishing allegations brought against Arctic Alaska between 1990 and 1992. And just last month, the U.S. Department of Justice issued a 44-count indictment against Arctic Alaska and its former officers in connection with the Aleutian Enterprise sinking in 1990 that claimed the lives of nine crew members.

Tyson had no hand in that tragedy, but SEC documents confirm what many locals suspected: Tyson agreed to pay for damages incurred by any former or current Arctic Alaska officer as the result of any lawsuit or investigation. These liabilities effectively inflated Tyson's purchase price of Arctic Alaska. Said Don Tyson: "I factored in all the liabilities when I priced the company."

Roy Brown, who has been Arctic Alaska president for three months, emphasizes that Tyson has not bought into the fish business.

Rather, it has seized another position in the "center-of-the-plate" protein megabusiness. Since Tyson bought Arctic Alaska, the proportion of its sales from poultry has dropped from 82 percent to 75 percent.

"Regardless of whether (Arctic Alaska) was a good buy or a bad buy, it's the job we do here at the company now that's important," said Brown, who formerly headed sales and marketing efforts for Tyson's international division. "This is not a business we plan to depart from."

Brown acknowledged that Arctic Alaska has five boats tied up now at local docks, including three factory trawlers. The vessels are money-losers.

The three idled trawlers are all cod boats and lack the proper equipment to fish for pollock. That fact confirms what many suspected - that Tyson bought an Arctic Alaska fleet that was significantly flawed.

When Tyson Foods officials talk about recent events, they boast they have secured a three-year contract with a seafood fast-food restaurant chain to supply fillets. That is the sort of arrangement that helps Tyson successfully surf the volatile swells of the commodity markets.

"Tyson doesn't see fish," said George Dahlman, an analyst with Piper Jaffray in Minneapolis. "They see fish sticks."

Dahlman and other observers said Tyson's true test would be whether it can get such a contract with a non-seafood chain. It already supplies chicken to 88 of the 100 largest fast-food chains; the idea is to channel fish into its vast distribution network.

Tyson's long-term goal is typically ambitious: It aims to increase Americans' consumption of seafood. Americans eat 65 pounds of chicken per person per year. They eat 15 pounds of seafood. Seafood consumption is even dropping.

Tyson Foods has been busy working to reverse that trend. In the past year, its research unit has unveiled 60 new processed-fish products.

"The fish industry has not done the things that it needed to get consumption up," Tyson said. "You know how to get consumption up? You catch fish and sell food."

"I had a breaded and battered fish sandwich 20 years ago," Tyson continued, "and that's still the No. 1 product."

He shook his head in disbelief and smiled.

Fish is different. For now.