001273 Higher Smithfield Bid for IBP Awaited

Chicago - Pork producer Smithfield Foods Inc. is expected to improve its offer for IBP Inc., as a deadline looms in its battle with poultry producer Tyson Inc. for control of the beef processing company, analysts said.

Springdale, Ark-based Tyson, the largest U.S. poultry producer, said it raised its bid for IBP by a dollar to $27 a share in cash and stock, valuing Dakota Dunes, S.D.-based IBP at $2.9 billion.

Smithfield, Va.-based Smithfield has offered $25 a share in stock and has been expected to raise the bid. A Smithfield spokesman could not comment on a potential new bid.

“The upside for a Smithfield bid is probably limited, but I would expect them to consider raising their ante because of the Tyson bid,” Patrick Schumann, food industry analyst at Edward Jones, said.

A new Smithfield bid might also include a cash component, analysts said.

“I would not rule out the idea that they go from an all stock bid to a part cash, part stock proposition.” said Jaine Mehring, food industry analyst at Salomon Smith Barney.

“ Is Better”

Tyson's bid is half cash, half stock, which means shareholders would have less exposure to stock fluctuations under that proposal than under Smithfield's current all-stock bid.

“All things being equal... more is better and a higher percentage of cash is better,” said Paul Korngiebel, a portfolio manager with Brandes Investment Partners, which owns about 9% of IBP's shares.

Analysts and investors said that IBP has set a Saturday deadline for submitting bids for the company. An IBP spokesman could not confirm this and a representative of the special committee of IBP directors considering the bids could not be reached.

If Tyson's price fell below $12.60 a share for a certain period, IBP shareholders would receive a maximum of 2.063 Tyson shares.

IBP's shares reached their highest level in almost two years Friday, up 7/8 at $26-13/16 in early afternoon trading on the New York Stock Exchange. Smithfield shares were down 44 cents at $30.41, off the 52-week high of $31.75 but well above the low of $14.875.

IBP's special committee of directors will evaluate the new Tyson bid, the IBP spokesman said.

Both bidders are interested in IBP as a way to broaden their product offerings and give them more clout with retailers.

Smithfield could afford to come in with a higher bid because it can squeeze more cost savings from IBP than Tyson. Korngiebel said. Smithfield could combine many of its pork operations with IBP, he noted.

“I think Smithfield has more synergies than Tyson,” Korngiebel said. “I think if Smithfield is willing to bid those synergies, the deal gets sweetened here.

Antitrust Issues

But those same synergies could raise more antitrust concerns that could make it harder for Smithfield to get an acquisition approved by regulators than it would be for Tyson, he said.

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

Indeed, Tyson also said 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 anti-competitive implications of a transaction between two companies.

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.

IBP already has a friendly $2.4 billion pact with DLJ Merchant Banking to take the company private, but that agreement is expected to be terminated in favor of a deal with Tyson or Smithfield.

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