001036 IBP Push For Case-Ready a Key to Takeover

Chicago - The planned purchase of top meat packer IBP Inc. by a Wall Street investor group could provide IBP with the financial muscle to push its brands aggressively in the retail meat case and compete with ConAgra Foods Inc. and other manufacturers.

Rawhide Holdings Corp., an affiliate of Wall Street investment giant Donaldson, Lufkin & Jenrette Inc., will buy all outstanding IBP stock at $22.25 a share.

IBP's board has approved the deal, valued at $2.4 billion in cash with additional assumption of $1.4 billion in IBP debt. IBP shares ended trading on Monday at $21-3/4 a share, up more than $3 and with some analysts calling the bid too low.

The purchase would provide IBP a source of capital because of its link to DLJ Merchant Banking Partners, IBP said.

“This transaction allows stockholders to receive cash for all their shares at a very attractive price. Another advantage is that DLJ Merchant Banking Partners III will be an excellent source of capital for IBP to implement our long-term business plan,” said Robert L. Peterson, Chairman and CEO of IBP.

DLJ said current IBP management would remain in place after the merger with no changes in operations or staffing expected.

Analysts said the extra capital after a merger would likely be spent producing and promoting IBP's brand of Thomas E. Wilson beef and pork products, cuts of beef and pork that will be packaged and ready to be placed on retail store shelves.

“To do that you really need a boatload of money,” said Todd Duvick, food industry analyst with Bank of America. “They definitely are going to have to invest in building their brand.”

IBP is the world's largest producer of fresh beef and pork and also a leading provider of meat to restaurants and food service outlets.

But IBP brand products have largely been an unknown in supermarket meat cases because most of its beef and pork cuts are sold as generic store brands. Like other food companies, it has been working to change that.

“You have to spend an awful lot of advertising dollars,” said Ron Plain, agriculture economist at the University of Missouri.

IBP has also already committed $80 million to $100 million to renovate two meat packing plants, one in Texas and one in Tennessee, to produce Thomas E. Wilson beef and pork. Partial production at both plants should begin in early 2001.

For years meat packers have chilled and boxed large portions of beef and pork cuts and shipped them to supermarkets where the back room butcher packages them for the store case.

“For IBP, it means they have to produce ground beef, pork chops and steaks in case-ready packages,” said Plain.

However, establishing a brand name can boost profit margins at a meat company like IBP.

“There is certainly plenty of upside potential for them to improve their margins if can they have a branded product,” said Bank of America's Duvick.

The Thomas E. Wilson brand was launched about six months ago and represents a small portion of IBP's $14 billion in annual sales.

“It is relatively small at this point but we expect it to grow,” said IBP spokesman Gary Mickelson. “It will be a nationwide brand within the next year.”

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