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The XL Foods Crisis: Is the media asking the right questions?

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Brian Nilsson

Postmedia News, owner of Alberta's two largest newspapers, was so relieved when one of the brothers who own troubled XL Foods Ltd. in this province's southeast finally emerged and apologized for the E. coli mess at the company's meatpacking plant the Edmonton Journal devoted a massive four-line headline to the story.

Normally, this is the sort of treatment reserved for humans landing in another part of the solar system or reports of the second coming, not a pro-forma apology, late and barely better than never, from one of the low-profile owners of the massive slaughterhouse in the town of Brooks.

But then, in fairness to the Journal, just about everybody in Alberta has been scratching their heads for days about why the Nilsson Brothers, owners of XL Foods' self-named parent company, had been doing such a pathetic job of public relations and brand management -- which was recently described in this space as a textbook example of how not to handle a PR crisis.

The mystery was all the deeper because Brian and Lee Nilsson not only can obviously afford competent public relations counsel, but based on their capable performance during the Alberta Mad Cow Disease crisis of 2003 know how to deal with this kind of situation.

But maybe the media are just asking the wrong questions.

Perhaps someone should ask how Edmonton-based Nilsson Brothers Inc. has been able to punch above its weight for so long, certainly more than a decade -- in 1998 spending $24 million to buy XL Foods Ltd., which in turn bought the Brooks plant in 2009 from Tyson Foods Inc. of Springdale, Ark., for $145 million US.

It seems likely the Nilssons simply couldn't have done it without partners with very deep pockets -- a fact that seems to have been missed entirely in the coverage of the situation to date. This includes another Postmedia story that went on for more than 1,500 words without getting anyone to say anything very revealing about the company or the people who own it, and a Globe and Mail story yesterday that similarly contained very little that is new.

If this conclusion is correct, it would be reasonable to speculate that the ineptitude of the Nilsson Brothers' handling of their PR crisis had as much to do with the wishes of their silent partners, whomever they may be, as any other factor.

So a good question for some investigative journalist with a nose for news and budget for extensive corporate searches -- the CBC's Charles Rusnell, c’mon down! -- might be to ask just whom those silent partners could be.

I can tell you that in 2004, according to the website of the Calgary-based Mancal Group of Companies, Nilsson Brothers Inc. did business with a company called Manvest Inc.

While the link to the page that is supposed to tell us about the nature of that business is no longer functional, simply informing us the file or directory can’t be found, a reader has dug into the Internet’s trunk of memories and provided a link to the missing Manvest Inc. page, which states that in July of that year, “Manvest announces that it has divested its equity interest in Nilsson Bros. Inc., an Edmonton-based marketer and processor of cattle, operating auction markets and beef slaughter and processing plants in western Canada, as well as feeding and other industry related businesses.” Readers will recall that this was at a time the Mad Cow crisis was continuing.

It would be interesting, of course, to know how big this equity position was and to whom it was sold.

Bloomberg Businessweek describes Manvest as the “private equity and venture capital arm of The Mancal Group specializing in management buy-ins, management buyouts, expansion capital, acquisition financing, succession planning, mezzanine and bridge financings, and pre-liquidity event value enhancement in emerging and middle market companies,” whatever the heck that’s supposed to mean.

The Mancal Companies are known to be owned by another pair of well heeled and low profile brothers, Calgary’s Fred and Ron Mannix, who according to Canadian Business Magazine and other sources are among the 10 richest Canadians.

The Mannix brothers are said to be so shy they fine their public relations counsel if their names ever appear in the media! So Alberta Diary apologizes in advance to their public relations staff if this mention results in a financial cost to them. They should just tell the Brothers this is just a blog, and nobody reads those things.

Regardless of whom XL Foods does business with, it is also a reasonable question to ask if the company now remains viable in the face of the likely costs associated with the closing and cleanup of the plant, the massive worldwide recall of products, insurance issues resulting from the E. coli contamination, potential class-action lawsuits and commitments in XL Foods' collective agreements with its workers.

It is within the realm of possibility the cost of these liabilities now exceed the value of the plant in Brooks.

This would be extremely bad news for the workers employed by the plant, 2,000 of whom the company laid off yesterday, and for the town of Brooks. Nor would it be good news for Alberta and Canadian taxpayers, who could well be called on to bail out a company that is too big to fail.

Nor would it be good news for Alberta beef ranchers, although not necessarily the disaster for them it might seem at first blush.

After all, there is capacity at the modern plant in High River, Alberta, owned by the Canadian subsidiary of Cargill Inc. of Minnetonka, Minn. In addition, U.S. meatpacking companies facing the possibility of several years of lower kill numbers in that country may be prepared to bid more for Canadian cattle.

So the Alberta Beef brand at least should be able to survive without XL Foods.

NOTE: This post has been revised to include information from an archived Manvest Inc. web page discovered by a reader.

This post also appears on David Climenhaga's blog, Alberta Diary.

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