Posted on: Tuesday, June 19, 2001

Tyson, IBP back at the table

By Peggy Harris
Associated Press

LITTLE ROCK, Ark. — Tyson Foods yesterday said it would heed a judge's order and resume plans to acquire IBP Inc. in a $3.2 billion deal that would combine the nation's largest chicken and beef producers.

Tyson opted against fighting a Delaware judge who ruled Friday that the Springdale, Ark.-based poultry company improperly tried to back out of the deal, under which Tyson would also assume $1.5 billion in IBP debt.

Officials from both companies met Sunday in what Tyson called a "positive and productive" meeting to try to move forward on the deal that, if successful, would create a meat processing powerhouse with 30 percent of the beef market, 33 percent of the chicken market and 18 percent of the pork market.

"As I first said in December, combining the operations of Tyson and IBP will create a protein company with unmatched reach," Tyson chairman John Tyson said.

George Dahlman of U.S. Bancorp Piper Jaffray said Tyson management likely realized during the weekend that the chances of a successful appeal were slim and figured the cost to buy IBP would not be much more than the cost to get out of the deal.

"You could pay a lot of money to get nothing or you could pay a little more and get something," Dahlman said.

With the announcement, Tyson stock tumbled $2.01, or nearly 18 percent to close at $9.37 yesterday on the New York Stock Exchange, where IBP shares jumped 33.3 percent, or $6.08, to close at $24.35.

Tyson announced a deal Jan. 2 to buy IBP, of Dakota Dunes, S.D., topping a rival bid from Smithfield Foods, the world's largest pork producer. The Justice Department approved the deal later that month.

But Tyson called off the deal in late March, alleging that IBP had provided misleading information about the company's worth. IBP then sued to enforce the deal's terms and on Friday, a Delaware Chancery Court judge ruled in its favor.

Vice Chancellor Leo E. Strine Jr. said he was not persuaded by Tyson's claims that it was kept in the dark about financial problems at an IBP subsidiary. He said Tyson improperly terminated its agreement with IBP and must proceed.

Tyson said yesterday the companies agreed to work toward completing a merger on the same financial terms to which they'd earlier agreed. "We are satisfied that IBP's accounting issues have been resolved," the company said.

John M. McMillin of Prudential Securities Inc. said the combined companies could mean "a potentially stronger company" and serve the retailer and consumers better.

Dahlman, of U.S. Bancorp Piper Jaffray, disagreed, saying the deal would weaken Tyson Foods because the company will take on considerably more debt and reduced earning power.

McMillin said he expected Tyson to make an announcement about the deal tomorrow.

For consumers, meat prices should remain about the same, he said, because the integration of the two companies will take a long time and pushing higher prices onto retailers would be difficult for Tyson to do, Dahlman said.

Poultry farmers predicted they would see lower pay, and some cattle ranchers adopted a wait-and-see attitude.

Larry Holder, executive director of the National Contract Poultry Growers Association in Siler City, N.C., said poultry farmers would likely be further squeezed if the merger goes through.

"The thing about it is the farmer is on the low end of the pay scale," Holder said, adding that the farmers have no legal protection built into the contracts. "It's a take-it-or-leave-it situation," he said.

The association represents more than 22,000 poultry farmers around the country.

Although he expressed doubts last week that a merger could work, Chuck Schroeder, chief executive officer of the National Cattlemen's Beef Association, yesterday said a Tyson-IBP merger would not threaten competition in beef production.

His hope, he said, is that the new company would continue to focus resources on beef production and would build consumer demand for beef through new products and marketing. The group, with headquarters in Greenwood Village, Colo., represents about 230,000 beef producers in almost every state.