Tuesday, April 3, 2012

Yucaipa Johnson - will we be able to buy pink slime at Dodger Stadium?

If you can't tell, I'm somewhat miffed at the inaccurate reporting that has been masquerading as news during the past few days - to the point that whenever I hear a radio report claiming that Magic Johnson is "leading" the group that is buying the Los Angeles Dodgers, I change the station. (If you haven't heard, the person who holds the title "controlling partner" is NOT Johnson, and the name of the group buying the team is NOT the Magic Johnson group.)

The truth is that Johnson is an investor - not the lead investor in the case of the Dodgers, but an investor nonetheless.

Another Magic Johnson investment has made the news today (oh boy). Again, based upon the name of the company, it does not appear that Johnson is the lead investor in this group.

The Yucaipa Johnson Corporate Initiatives Growth Fund, is the country’s premiere private equity growth fund focusing on strategic investments in companies located in and/or serving America’s under-served markets. With over $500 Million in capital, the fund also provides capital for suppliers in our Corporate Partners’ supply chains requiring growth capital to support the organization on a larger scale.

No fund is perfect, and it turns out that Ron Burkle (the Yucaipa guy) and Magic Johnson have run into a bad investment.

Roughly 850 workers at AFA Foods, which is owned by Los Angeles-based private equity firm Yucaipa Cos. and basketball great Magic Johnson, are facing layoffs.

The Pennsylvania-based company...is filing for bankruptcy....

What happened at AFA Foods? Well, it turns out that one of its meat processing techniques, despite being approved by the U.S. Department of Agriculture, has received a negative backlash lately. In fact, perhaps you yourself have raised objections to lean, finely textured beef:

Dr. Russell Cross, head of the department of animal science at Texas A&M, said lean, finely textured beef is nutritious, and a production process he approved while serving as administrator of the U.S. Department of Agriculture-Food Safety Inspection Service in 1993.

"The simplest way to describe this is that it is meat, it’s beef," he said. "The protein content is similar to what is ground in a steak. This product is no different than meat; that’s the reason USDA calls it meat."

However, over the last few weeks people have been talking about lean, finely textured beef without talking about lean, finely textured beef. Lately, people have applied a different name to the beef. David Katz, MD used the alternative term recently:

Pink slime is rather yucky. As you likely know by now, this less-than-flattering but well-deserved moniker applies to lean finely textured beef, a widely-used food additive. Some of you now know that you have been eating the stuff all along, in blissful ignorance.

Whether or not pink slime is bad for health -- a topic generating impassioned debate -- may be moot. If people don't like the idea of eating it, it will go away.

And pink slime apparently is going away - and 850 jobs are going away along with it. But Dr. Katz points out something else:

Pink slime tells us much about the character of a modern food supply comprising hundreds of thousands of packaged foods, and a whole industry devoted to additives. Pink slime has been "outed," so you can get it out of your diet. But how many other variations on the theme of pink slime might there be? What IS that purple snot salad dressing, anyway? How many food components have yet to be outed, and thus are still finding their way into you -- and your family -- as a matter of routine? Food for thought.

So is Magic Johnson a bad investor? It's fair to say that no one could have predicted how "pink slime" hate could go viral. And whenever you invest in "under-served markets," you are automatically taking on a greater level of risk - and, of course, a greater level of reward.
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