001268 Tyson Raises IBP Bid to $2.9 Billion

New York - Poultry giant Tyson Inc. raised its unsolicited bid for beef processor IBP Inc. by nearly 4% to $2.9 billion in cash and stock and offered to compensate its target if the deal was blocked for antitrust reasons.

Springdale, Ark-based Tyson said it would pay $27 a share for IBP, up from its previous offer of $26 a share. The offer is half cash and half stock.

IBP already has a friendly $2.4-billion pact with DLJ Merchant Banking, but that agreement is expected to be terminated in favor of a deal with Tyson or rival bidder Smithfield Foods Inc., which has offered $25 a share in stock and also is expected to sweeten its price.

“We remain the best bidder, with the best terms -- representing a premium of 8% over Smithfield's offer -- and in the best position to close quickly,” said Tyson Chairman, President and Chief Executive John Tyson in a news release.

Both bidders are interested in IBP as a way to broaden their product offerings and give them more clout with retailers. Smithfield, based in Smithfield, Va., is the world's largest hog and fresh pork producer.

Farmers, agricultural officials and consumer activists are concerned a purchase of IBP by either Tyson or Smithfield would be anticompetitive.

Indeed, Tyson also said Thursday the Department of Justice was seeking additional information about its proposed offer. Known as a “second request” the development means regulators are concerned about potential anticompetitive implications of a transaction between two companies.

Tyson said it expects to quickly respond to the concerns. Most Wall Street experts had anticipated Tyson would receive a second request. Smithfield also has filed for antitrust approval on its offer, and also is expected to get a second request.

To alleviate some of those concerns, Tyson offered to assume all risks associated with antitrust issues and said it would pay IBP a $70-million break- up fee if the deal did not get completed because of antitrust concerns. It also said it would not require a break-up fee from IBP.

Tyson also challenged a bidding process established by IBP in which it said bids were to be submitted Dec. 30.

“We believe it is inappropriate to now move the process behind closed doors without the opportunity for the marketplace to react to the various bids,” Tyson wrote in a letter written to the IBP special committee that is assessing the offers.

Although it sweetened the bid, Tyson did not widen the so-called “collar” that would protect IBP shareholders from a decline in Tyson's stock price. Tyson's stock price has hovered near the collar and frequently traded below it in recent weeks, meaning IBP shareholders could potentially receive less than $27 a share.

Industry experts have said IBP would look more favorably upon a Tyson deal if the collar were to be widened.

The collar calls for IBP shareholders to receive $27 a share in stock if Tyson's stock price was trading between $12.60 and $15.40 a share for a certain period of time. If Tyson's price fell below $12.60 a share for that period, IBP shareholders would receive a maximum of 2.063 Tyson shares.

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