001037 Investor Group to Buy Meat Producer IBP

Chicago - IBP Inc., the world's largest producer of fresh beef, pork and related products, has agreed to a $2.4 billion buyout by an investment fund affiliated with Donaldson, Lufkin & Jenrette, giving it access to funding as it tries to expand its business.

The deal calls for all shares of Dakota Dunes, South Dakota-based IBP to be purchased for $22.25 in cash. The investment fund, Rawhide Holdings Corp., an affiliate of private equity fund DLJ Merchant Banking Partners III LP, will also assume about $1.4 billion in debt.

The stock had traded as low as $11 in March after rising to about $29 in December, 1998. But many analysts said the offer was low, with some saying IBP is worth closer to $30 a share based on expected cash flow and earnings.

“The bottom line is that this is a low bid for a company that has enough earnings power to fuel a $30 stock price even with the heavy upfront spending for case-ready products,” John McMillin, analyst at Prudential Securities, said. “Whether or not a company like rival Smithfield Foods Inc. comes in and offers a bid slightly higher for IBP is the key question.”

Rival processor Smithfield Foods owns a 6.3% stake in IBP and analysts suggested the Smithfield, VA-based company would team with other shareholders to make a higher offer.

A Smithfield spokesman said the company was, “studying the situation.”

But some analysts questioned whether Smithfield, a pork company, would be interested in IBP's meat operations.

“I'd be surprised if Smithfield came in,” said Terry Bivens, analyst at Bear, Stearns. “It doesn't seem like their kind of company.”

The deal contains a $59 million breakup provision payable to DLJ if the agreement is not completed.

IBP is in the middle of an expansion into the “case-ready” business, where cuts of beef or pork are packaged and ready to place into retail meat cases.

“This transaction allows stockholders to receive cash for all their shares at a very attractive price,” Robert Peterson, IBP chairman and chief executive, said in a news release. “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.”

IBP has more than 60 production sites in North America, and joint venture operations in China, Ireland, and Russia. The 40-year-old company had sales of $14.1 billion in 1999 and employed 49,000 people.

IBP is also the largest U.S. exporter of red meat and operates sales offices in England, Japan, Taiwan, China, Korea, Russia and Mexico.

With the deal expected to close in early 2001, DLJ Merchant Banking Partners and affiliated funds would become the majority owner of IBP. Other investors include agribusiness giant Archer Daniels Midland Co., Booth Creek Partners and some IBP managers.

IBP management will remain in place following the deal, the companies said. No changes in operations or staffing are expected.

The DLJ affiliate approached IBP late in the first quarter with the idea of a deal, when the stock was trading closer to $12 a share, IBP chief financial officer Larry Shipley said in an interview.

He added that a special committee of the IBP board, which did not include IBP management or DLJ chairman John Chalsty, an IBP board member, negotiated the offer and were advised by JP Morgan.

“JP Morgan and the special committee of the board came to the conclusion that this was a good deal for shareholders,” Shipley said when asked about analysts contention that the price was too low.

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