Tyson Tops Smithfield in Fight for IBP
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Cash, Stock Deal May Form
Biggest Meat Processor;
$3.2 Billion Is Final Bid
Poultry giant Tyson Foods Inc., moving to end a food fight over IBP
Inc. by substantially sweetening its bid, said it clinched a deal to
acquire the nation's largest meat packer for nearly $3.2 billion in cash
and stock, or $30 a share.
The deal capped a marathon New Year's Eve bidding war that pitted
Tyson against pork processor Smithfield Foods Inc., a rival suitor for
IBP. Both suitors raised their bids over the weekend, with Smithfield
willing to pay as much $32 a share for IBP. But Smithfield faced several
months of antitrust scrutiny and had offered all stock and no cash,
which meant its $32-a-share bid would be much lower if Smithfield stock
declined. As a result, a special committee of IBP's board agreed to accept
Tyson's proposal, which is half-cash and half-stock and faces a greater
certainty of closing. Tyson, which had originally offered $26 a share,
will also assume about $1.5 billion in IBP debt.
For Tyson, buying IBP will be a transforming deal, allowing it to
expand outside chicken products and likely making it the nation's
largest meat company, with $23 billion in annual sales. IBP is the
nation's No. 1 beef processor and No. 2 pork processor. Tyson has long
desired to dominate what it considers the "center of the plate." A deal
with IBP would allow Tyson to control much more of the meat sold through
grocery stores and food-service establishments, giving it additional
clout with behemoth retailers.
In an interview, John Tyson, chairman and chief executive, said that
people could "debate" the higher price, but once they realize that "this
is a unique opportunity, a once-in-a-lifetime opportunity, they might
value things differently." Besides, he added, the transaction is
expected to add to earnings per share by 15% in the first full year even
at the higher price.
Some analysts have viewed IBP as an important deal for Tyson, which
revolutionized the chicken industry during the 1980s, making chicken the
No. 1 meat in the U.S. Tyson was a pioneer in taking apart broiler birds
and selling the individual parts, such as breasts, that consumers
wanted. It also made a name for itself by contracting with farmers to
raise chickens to certain specifications so it could sell a uniform and
consistent product.
But chicken consumption is not growing at the rate it once did. Mr.
Tyson said he believes the company can use a similar model for other
meats, branding beef and pork in the same way it branded chicken and
offering convenience and ready-to-cook meats.
Tyson isn't alone in pursuing this formula. IBP was already starting
to offer branded products, and Smithfield is considered a leader in the
pork industry for its marketing of branded pork products.
"We believe that our offer was a full and fair price for the
company," said Smithfield Chairman and Chief Executive Joseph W. Luter
III in a statement. "With our track record of successfully integrating
acquisitions and creating shareholder value, we believed then -- as we
believe now -- that our proposal was the best proposal for IBP
shareholders. We are confident that over the next 12 months and beyond,
the IBP shareholders will, in hindsight, conclude that our offer would
have created superior value," he added.
Smithfield, based in Smithfield, Va., will end up with a consolation
prize of its own, since it acquired 6.96 million shares of IBP, or 6.6%
of IBP's shares outstanding, when IBP stock was trading in the
mid-teens. As a result, Smithfield now stands to make a profit of about
$95 million, according to a person familiar with the matter.
At 4 p.m. Friday in composite trading on the New York Stock Exchange,
shares of IBP, based in Dakota Dunes, S.D., rose 81 cents to $26.75,
while Tyson's Class A shares were unchanged at $12.75. Smithfield
slipped 45 cents to $30.40 a share.
A sale to Tyson will mark the end of a strange takeover saga that
started three months ago when IBP's board accepted a $22.25-a-share
buyout bid from management and Donaldson, Lufkin & Jenrette Inc., IBP's
longtime investment banker. The offer was widely criticized as being a
sweetheart deal and was topped six weeks later with an unsolicited bid
from Smithfield that valued the larger IBP at $25 a share in stock.
Tyson, based in Springdale, Ark., joined the fray one month ago with
$26-a-share bid in cash and stock, which it sweetened to $27 on
Thursday. By Friday, Smithfield had offered $30 a share in stock, and
Tyson had sweetened its proposal again to $28.50 a share in cash and
stock. At that point, it appeared that Tyson had a deal sewn up, but
Smithfield upped the ante on Sunday, offering $32 a share.
That forced Tyson to sweeten its bid one last time, to $30 a share in
cash and stock. The stock portion of Tyson's bid is subject to a maximum
exchange ratio of 2.381 of its class A shares for each IBP share and a
minimum exchange ratio of 1.948 shares if Tyson's average trading price
for an agreed-to period of time is outside the range, or "collar," of
$12.60 to $15.40.
IBP shareholders, who were upset at the management-buyout bid, will
likely be delighted with the Tyson offer, which is nearly 35% higher
than what the financial consortium had offered. That said, the
consortium, led by DLJ, nevertheless stands to make a pretty penny now
that its transaction with IBP has been terminated. Under terms of its
original agreement, DLJ, which is now owned by Credit Suisse Group's
Credit Suisse First Boston unit, will collect a breakup fee of $59
million, plus expenses.
The deal is expected to face scrutiny from the Justice Department.
Last week, Tyson said it received a second request by the agency in
response to the company's antitrust filing. Nevertheless, Tyson has
expressed confidence in the deal's approval and expects it to close in
the first quarter. Tyson has assured IBP's board that it will satisfy
regulatory concerns and has offered to pay IBP a $70 million breakup fee
if it can't close a deal because of antitrust obstacles. Should IBP walk
away from the deal, Tyson will be entitled to a much smaller breakup fee
of $15 million.
Tyson said it received fairness opinions from Merrill Lynch & Co. and
Stephens Inc. IBP was advised by J.P. Morgan & Co. and Peter J. Solomon
Co.
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Meat Market
By Nikhil Deogun
Staff Reporter of The Wall Street Journal
01/02/2001
The Wall Street Journal
A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Tyson gobbles up IBP for $3.2 billion in cash and stock, plus the
assumption of $1.5 billion in debt.
Tyson
-- Headquarters: Springdale, Ark.
-- CEO: John Tyson
-- FY 2000 sales: $7.16 billion
-- FY 2000 profit: $151.0 million
-- Employees: 65,000
-- Business: Fully integrated producer, processor and marketer of
chicken and chicken-based convenience food
IBP
-- Headquarters: Dakota Dunes, S.D.
-- CEO: Robert L. Peterson
-- FY 1999 sales: $14.08 billion
-- FY 1999 profit: $313.3 million
-- Employees: 49,000
-- Business: Producer of fresh beef, processed beef and pork products
Note: Fiscal year ended for Tyson Sept. 30 and IBP Dec. 25
Source: The companies
Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.