001056 Anger Over Low Price Could Kill IBP Deal

Chicago - Festering shareholder anger at a $22.25-a-share buyout offer for meat-processing giant IBP Inc. threatens to derail the proposed bid, and the company said it would consider other offers.

Last week, New York-based investment bank Donaldson, Lufkin & Jenrette announced a private equity fund subsidiary of its DLJ Merchant Banking Partners III affiliate had agreed to acquire the stock of IBP for about $2.4 billion in cash and assume $1.4 billion in debt. The deal is targeted for completion in early 2001.

A chorus of complaints from significant shareholders has emerged since the announcement, with many investors arguing the proposed cash price for IBP's stock is several dollars below fair value for the company.

“It's a dice roll. Unless they raise the bid, I think there is almost a 50- 50 chance the deal gets rejected,” said John McMillin, Prudential Securities food industry analyst.

Shareholders representing 16% of the equity in IBP said they believe the DLJ bid is too low. One of those investors, Paul Korngiebel of Brandes Investment Partners, said he found widespread negative sentiment among shareholders he surveyed whose cumulative stake totals more than 35%.

“I've heard more shareholders than I've heard before complaining about the low price. (Frustration) appears to be stronger than I've seen in other cases,” said George Dahlman, agribusiness analyst with U.S. Bancorp Piper Jaffray.

Tim Drake, senior equity analyst with Banc One Investment Advisors, which owns slightly more than 1% of IBP shares, put fair value for IBP shares in the mid- to high-$20s.

“For the most part, shareholders seem dissatisfied with the (DLJ bid) price,” said Drake, whose firm has $130 billion in total assets under management.

Smithfield Foods Inc., a key IBP competitor that owns a 6.3% stake in the meat packer, also considers the $22.25-a-share bid from DLJ “on the low side,” said Smithfield spokesman Jerry Hostetter.

“We share the other shareholders' frustration. We were long-term investors here and thought the returns could be worthwhile,” Hostetter said.

Hostetter declined to comment on market speculation that Smithfield, the world's largest pork processor, could organise a rival bid for IBP, the top producer of fresh beef.

Korngiebel, a portfolio manager at Brandes, which owns a 9% stake in IBP, said the DLJ proposal misjudged what the shareholder base believes is fair value for the stock. He placed fair value at $28 to $30.

Korngiebel questioned the fairness of the bid process because it appeared DLJ's was the only offer involved.

“At a later date, we may have to consider all the alternatives to us if nothing is done about the current unfair offer at $22.25,” said Korngiebel, whose firm manages $50 billion in assets.

IBP in a prepared statement Thursday said it went to great lengths to protect shareholder interests, including forming a special committee of independent directors to evaluate the offer. It also said it would consider other credible offers.

But Dahlman of U.S. Bancorp questioned whether an offer from agribusiness giant Cargill Inc., the largest privately held company in the United States, or ConAgra Foods Inc. (NYSE:CAG - news) -- two logical candidates because they both have meat operations -- could overcome antitrust concerns.

Archer Daniels Midland Co. (NYSE:ADM - news), whose ownership stake in IBP would increase to 25% from its current 12% under the DLJ plan, is not interested in gaining a majority stake in the meat processor, said Dwight Grimestad, ADM's vice president of investor relations.

“We don't want to own a meat company, but at the same time, we like the view of the food market that this gives us,” he said.

ADM would also get a cash payout of just under $68 million in the DLJ transaction and incur additional debt from the restructuring of IBP, Grimestad said.

Shareholders will be asked to vote on the DLJ bid sometime within the next 60 to 90 days, an IBP spokesman said.

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