Swift Suit for HM Capital

Remember that giant raid on illegal immigrants last week? Well it has indirectly swept up HM Capital, the Dallas-based private equity firm formerly known as Hicks, Muse, Tate & Furst (only Muse remains).

For the uninitiated, federal immigration agents conducted a six-state, simultaneous raid on Swift & Co. meat and pork processing and packaging plants. It had been prompted by discovery of alleged identity theft, and resulted in 1,282 workers being arrested. Around 95% of the arrested workers were charged with some form of immigration violation – either in the U.S. illegally or unable to produce proper documentation — while the remainder were alleged to have taken part in the ID thefts. There are giant political implications worth discussing over the water-cooler, but the business impact was that Swift was forced to temporarily shut down and is scurrying to replace its labor force. For context, Swift is the nation’s third-largest meatpacker – behind Tyson and Cargill – and reported $9.35 billion in 2005 sales.

How does HM Capital fit in? Well, the firm Swift acquired Swift from ConAgra Foods in 2002 for approximately $1.4 billion. Not only is it likely to suffer at least a temporary portfolio company devaluation (or at least a reduced ability to exit at a high multiple), but it also now is facing a civil lawsuit from 18 former Swift employees, who say the company knowingly sought out, smuggled, and hired illegal immigrants in order to depress overall wages. If true, the complaint argues, it would mean that both HM Capital and Swift engaged in racketeering to manipulate commerce. The plaintiffs are seeking a total of $23 million in damages.

Swift & Co. is on record as denying having knowingly hired illegal immigrants, and an HM Capital spokesman said: “HM Capital is following the situation closely and fully supports Swift management’s handling of that situation.” It also has said that the “lawsuit is without merit.”

The suit can be read here: SwiftComplaint1.pdf