SIOUX FALLS, S.D. (AP) -- A state-of-the-art South Dakota beef packing plant that has lacked the money to ramp up to full production is set on finding a buyer rather than reorganizing.
Northern Beef Packers in Aberdeen, which filed for Chapter 11 bankruptcy protection last month, asked the court in Sioux Falls on Thursday to allow it to hire investment banking firm Lincoln International, which is now recommending a sale.
Chris Stradling, a mergers and acquisitions adviser with Lincoln, testified Thursday that his company would look for a "stalking horse" bid, in which one potential buyer makes an initial offer to set the floor for an auction that invites competitive bids.
"The most likely outcome is that someone else will own this business in a control position," Stradling said.
Land for the $109 million plant was first secured in 2006, but the company wasn't able to slaughter its first animal until late in 2012 and has since struggled to reach anywhere near its production target of 1,500 head per day.
"We didn't have the capital necessary to ramp up operations," said Bob Wright, Northern Beef's chief operating officer.
Now, with $138.8 million in liabilities and just $79.3 million in assets, according to court documents, the plant has laid off most of its employees and halted production.
Since May, Northern Beef executives have been working with Lincoln to find either a buyer or additional investors to help Northern Beef purchase enough cattle to turn a profit.
Stradling said new investors were weary of putting in money since there would be so many investors in line ahead of them.
"It was an unfavorable investment, ultimately, when you do the math," he said.
Once locally owned, Northern Beef Packers is 41 percent owned by businessman Oshik Song with 69 other Korean investors who each gave at least $500,000 under the federal EB-5 program that encourages foreign investment in exchange for qualifications to secure permanent residency.
Northern Beef Packers was pitched in 2006 in response to then Gov. Mike Rounds' South Dakota Certified Beef initiative. Rounds hoped to get the state's ranchers premium prices by allowing consumers to track animals from birth, through a feedlot and to a meatpacking plant.
But just as construction of the plant was about to begin, local opponents forced a public referendum on the TIF bond plan. Voters gave their thumbs up, but then heavy spring rains brought severe flooding, prompting more delays.
Northern Beef Packers meanwhile used EB-5 to attract investors and spur the start of construction. The new owners recruited another round of EB-5 investors, but the new investment fund provided loan money instead of equity shares in the company.