010125 IBP Saw Tyson Deal Safer With Regulators

Washington - U.S. beef processing giant IBP Inc.'s decision to accept a lower bid from Tyson Foods Inc. over Smithfield Foods Inc., was heavily influenced by the possibility of receiving quicker federal antitrust approval and less risk with a cash and stock offer, a U.S. regulatory filing showed.

IBP disclosed details of the bidding process between poultry producer Tyson and Smithfield, the world's largest hog and fresh pork producer, in a filing with Securities and Exchange Commission.

The battle culminated with IBP accepting Tyson's offer of $30 a share in cash and shares because it “would have more current value” than Smithfield's stock-only offer of $32 a share, IBP said.

The SEC filing comes four days after the Jan. 1 agreement, which calls for Tyson paying 50.1% of the consideration in cash and the balance in class A common stock, one day after Smithfield lowered its stake in IBP to less than 5%.

IBP said it had considered advice from J.P. Morgan, which studied among others potential declines of each of Tyson and Smithfield's stock and their relative historical performance, including price volatility, reaction by the market to each proposal and other factors.

“Based upon these analyses, J.P. Morgan advised...the Tyson proposal would have more current value than the Smithfield proposal,” IBP said in the filing.

TYSON'S REGULATORY HURDLE LOWER

Another factor that played a major role in IBP's decision during the bidding process was how long it would take to overcome regulatory hurdles with the U.S. Federal Trade Commission and the antitrust division of the Department of Justice.

IBP said it considered a deal with Tyson would take less time to complete than with Smithfield.

IBP “considered regulatory delays, including the fact that a transaction with Smithfield would likely by subject to greater regulatory scrutiny and delay than a transaction with Tyson.”

It also liked the fact that Tyson had agreed to take “all actions necessary” to gain regulatory approval, and in addition, pay IBP a $70 million termination fee in the event regulators decided the merger would not be in the best interest of the public.

While Smithfield agreed to “certain divestitures and...to some restrictions” on its business, IBP said in the filing that it feared that there would be “significant political opposition” to a deal with Smithfield.

Smithfield also was only willing to commit to a $15 million termination fee if its transaction would be completed because antitrust approval could be obtained.

AGGRESSIVE MOVE BY TYSON

Tyson, once it got wind that Smithfield sweetened its offer by $2 a share to $32 a share on December 31, acted aggressively.

With that in mind, Tyson told IBP it would respond the next morning with a new offer as long as IBP agreed to “definitively accept or reject the proposal by 11 a.m. on January 11, 2001 and...to have no communication with Smithfield until such time.”

IBP said it agreed to the new conditions for a meeting on New Year's day because “its failure to do so or to agree to Tyson's other terms for submission of its new proposal ran the risk that Tyson would not submit its proposal, thereby possibly depriving the company's shareholders of what could be a Tyson bid providing greater value than the latest Smithfield offer.”

After Tyson's presented its new offer in the morning of January 1, IBP's special committee huddled with its advisers, J.P. Morgan and Peter J. Solomon Co. Ltd.

“The definitive merger agreement was executed at 11 a.m. on January 1, 2001.”

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com