010104 Tyson Foods will buy IBP for $3.2 billion

Tyson beat out Smithfield Foods for the prize. IBP is the nation's biggest beef packer and its number two pork processor. By taking over the Dakota Dunes, SD, company, Tyson reenters the pork market. It now stands to dominate Christmas dinner of 2001 whether the main dish is turkey or ham. The combined company will also be big in beef, making it a meatpacking juggernaut.

The deal at $30 per share ends a month-long battle for IBP, which last year reported more than $14 billion in sales, compared with Tyson's $7.1 billion. In addition to the cash and stock, Tyson will assume about $1.5 billion in IBP debt.

Smithfield, with annual sales of $5.2 billion, is the world's largest hog producer and fresh pork processor. It actually offered more for IBP--$32 per share compared to Tyson's $30. IBP closed Dec. 29 at $26.75.

IBP's board accepted Tyson's bid because half was in cash and therefore the deal was less subject to market volatility. The Tyson transaction will also likely face less antitrust scrutiny--though there will still be some questioning from regulators who may be concerned about the merger's effect on farmers and ranchers.

Over the weekend, while the rest of the world was partying, Tyson upped its bid from $27 per share. Smithfield, which had offered $27, raised its bid to $30 and finally $32. But that offer was in Smithfield stock. Shares of all three companies have been rising since the middle of 2000. But Tyson began 2000 with a sharp dive from $17 per share down to $9.

Tyson dominates poultry and has since the 1980s, helping make chicken the most-consumed meat in the U.S. (Beef is still number one in dollar terms.) But Tyson got out of pork years ago. It says it will run IBP as a subsidiary, leaving its management in place. “We will have an unparalleled ability to develop innovative, branded food products and market them successfully through all the distribution channels,” said John Tyson, Tyson's chairman and chief executive, in a statement. Tyson has led the move to sell meat with a brand, and it is expected to try to brand beef and pork also. Tyson is also a leading supplier of chicken breeding stock as well as supermarket tortillas.

In October, IBP had planned a $2.4 billion management buyout led by investment firm Donaldson, Lufkin & Jenrette, now part of Credit Suisse First Boston, and Archer Daniels Midland. That deal sparked protests and lawsuits from shareholders who said the buyout plan undervalued the company. This deal, one-third higher than the management-led bid, proves those shareholders correct.

Smithfield and DLJ will both go home with some lovely parting gifts. Smithfield had bought 6.6% of IBP stock before it first made its offer in November. DLJ will get a $59 million breakup fee.

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