IBP files lawsuit to force Tyson to complete $3.2 billion deal

Saturday, March 31st 2001, 12:00 am
By: News On 6

DAKOTA DUNES, S.D. (AP) _ Meatpacking giant IBP Inc. filed a lawsuit Friday to force Tyson Foods Co., the world's top poultry producer, to complete its $3.2 billion purchase of the South Dakota company.

The suit in Chancery Court in New Castle County, Del., came a day after Tyson nixed the deal and filed its own lawsuit to end the merger.

``Tyson's actions are completely unjustified by anything that has transpired and we will do what is necessary to protect our shareholders and our company,'' Robert L. Peterson, IBP chairman and chief executive officer, said in a statement late Friday afternoon.

A spokesman for Springdale, Ark.-based Tyson declined to comment on the suit Friday, saying he had not seen it.

Thursday's decision by Tyson to call off the purchase came nine days after IBP said an investigation into its appetizer unit, DFG Foods, uncovered potential manipulation of financial records and product theft, and mismanagement by former unit managers.

``While we continue to believe that the combination of IBP and Tyson would have created the premier protein company in the world, we simply cannot endorse a decision to complete the transaction under the facts as we understand them today,'' said John Tyson, chairman and chief executive of the Springdale, Ark.-based Tyson, on Thursday.

A combination of Tyson and IBP would have created a company with 30 percent of the beef market, 33 percent of the chicken market and 18 percent of the pork market.

Still, analysts weren't surprised by the decision by Tyson to drop the deal.

``They were taking on more than they could really handle here,'' said George Dahlman, food analyst with U.S. Bancorp Piper Jaffray.

Tyson's agreement to buy IBP was announced Jan. 1, after a bidding war with Smithfield Foods Inc., the world's largest hog producer and processor.

IBP amended financial reports to the SEC after accounting problems were uncovered, and Tyson said Thursday the terms of the deal had been based on inaccurate filings to the SEC.

``Unfortunately, we relied on that misleading information in determining whether to enter into the merger agreement,'' Tyson general counsel Les Baledge told IBP officials.

IBP disputes that explanation.

Prior to signing the deal, Tyson got accurate updates on potential charges to DFG, IBP said. Tyson was told, for instance, there would be an additional pretax charge of at least $30 million, IBP said. The actual charge came to $44.9 million.

Moreover, the agreement was clear about the chance of more costs related to DFG, and no limit was set on the amounts, the suit states.

IBP said that DFG accounted for less than half of 1 percent of IBP's sales in 2000 and has little bearing on its financial condition.

Meanwhile, Tyson repeatedly expressed its commitment to the merger even after it got the SEC letter, IBP spokesman Gary Mickelson said Friday.

Said Peterson: ``We can only speculate that this is a classic case of 'buyer's remorse,' because there is clearly no basis for Tyson's claim that it was fraudulently induced and does not have to proceed with this transaction.''

IBP employs about 50,000 people. Besides its pork and beef production business, the firm also makes prepared foods for the retail and food service industries.

Tyson has about 68,000 workers, with operations in 18 states and 15 countries. Besides its trademark chicken producing operation, the company is also a leading pork producer and the country's No. 2 maker of corn and flour tortillas.

On Friday, IBP shares dropped $6.39 to close at $16.40 a share on the New York Stock Exchange, while Tyson rose $1.97, or 17 percent, to close at $13.47 a share.

Shares of Smithfield also dropped Friday as investors worried the Smithfield, Va. company would launch a bid for IBP.

Shares fell $5.35, or 14 percent, to close at $32.50, also on the NYSE.

Smithfield officials did not return repeated calls seeking comment.