001034 Will Low Price for IBP Deal Raise Another Bid?

Chicago - The $22.25 a share an investment fund has agreed to pay for meat and pork processor IBP Inc. is so low it could open up the possibility of another bidder, analysts said.

“I think it is too cheap,” Terry Bivens, analyst at Bear, Stearns, said of the proposed $2.4 billion buyout of IBP, the world's largest producer of fresh beef, pork and related products.

Investment bank Donaldson, Lufkin and Jenrette said that an investment fund affiliate had agreed to buy Dakota Dunes, South Dakota-based IBP in a deal that also includes the assumption of about $1.4 billion in debt.

While the deal represents a large premium over the stock's 52-week low of $11, it is below the $25-6/16 52-week high and even further below what some analysts think the company is worth. IBP ended trading on Monday at $21-3/4 a share.

“I estimate the true value here on a discounted cash flow basis of $30 a share,” David Nelson, analyst at Credit Suisse First Boston, said.

Some of IBP's largest shareholders, including agribusiness giant Archer Daniels Midland Co., will continue to be owners once the deal is completed.

But analysts suggested that rival pork processor Smithfield Foods Inc., which owns 6.3% of IBP, might try to organise a higher bid.

“Smithfield has been very prone to make acquisitions and there has always been some suggestion that they might go after IBP,” said Bivens of Bear, Stearns. But he added that IBP's beef business would not be attractive to Smithfield, which concentrates on pork.

It takes longer for a down cycle to turn around in the beef industry than in the pork business, because it takes longer for cattle to be raised to slaughter weight than hogs, analysts said.

“The red meat market is a very, very tough one,” Bivens said.

Federal and state competition regulations could also get in the way of a Smithfield bid for IBP.

The meat industry is already highly concentrated and a purchase of IBP by another meat company would likely provoke the federal government to fight it to prevent further concentration, said Todd Duvick, food industry analyst with Bank of America.

Duvick said he is not aware of another domestic food company that would want IBP.

“The major foreign food names I can think of would be like Unilever and Nestle SA , and maybe some Japanese companies. But even there, they really haven't shown a major appetite for this type of business,” he said.

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