Update: Yesterday's (10-17-07) Wall Street Journal (subscription) article about this investigation began "Prominent American food companies are under scrutiny in a federal probe of possible fraud and corruption in the military's food-supply operations for the Iraq war", and went on to read "The inquiry is focused on whether the food companies set excessively high prices when they sold their goods to the Army's primary food contractor for the war zone." Today's (8-18-07) WSJ article about the investigation reported a very different slant to the story, suggesting that, rather than pursuing American producers, the government was investigating the wholesaler and companies involved in the Kuwait end. Given this change, I find the story I have written below no longer substantiated, and caution readers to wait along with me for more reliable information.In accordance with our policy of owning up to what we have written, the post will remain.
A number of American food companies including
Sara Lee (NYSE:
SLE),
ConAgra (NYSE:
CAG) and Perdue Farms Inc. have come under suspicion of conspiring with Kuwait-based
Agility Corp., a logistics supplier for the U.S. troops in Iraq, to inflate food supply costs. In June, Agility received a new, one-year,
$2.8 billion contract to provide life support (billeting, motor pool, dining and medical support services) to troops in Iraq. Agility, until recently known as Public Warehousing, has
enjoyed a series of support contracts throughout much of the Iraq conflict.
According to Reuters, the Defense and Justice Departments are investigating allegations that Agility may have taken kickbacks from its suppliers, as well as charging the U.S. military unreasonably high prices for provender.
Agility, founded in 1979, was taken public in 1997 and is traded on the Kuwait exchange. It employs over 20,000 people in over 100 countries, with an annual revenue of $4.5 billion. In June, it was also awarded a
$43.6 million contract for base operations and maintenance services at U.S. Air Force bases in Spain.
Update: ConAgra has put out a
press release claiming that the DOD is looking to them as witnesses, rather than perpetrators.
Northrop Grumman (NYSE: NOC - option chain) shares are rising today after the company announced last night that it has received new contracts from the US Military. NOC will overhaul the Navy's Theodore Roosevelt, a nuclear-powered carrier, for $2.4 billion. NOC also received a modified $3.44 billion contract from the Air Force to provide services for its B-2 weapon system. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NOC.
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