010152 Tyson Delays IBP Bid, Cites SEC Probe

New York - Tyson Foods Inc. said it was delaying its $3.2 billion purchase of beef processor IBP Inc. due to a government probe into IBP's accounting practices.

The unexpected development sent IBP shares down more than 15% at one point on the New York Stock Exchange as investors tried to assess whether the deal was in jeopardy.

IBP confirmed it received a request for information from the U.S. Securities and Exchange Commission, but said it was not unusual. It also said it would file a response to the government by Jan. 26.

“We are confident these questions will be resolved expeditiously and in a satisfactory manner,” IBP said in a news release.

IBP shares edged up from session lows after IBP issued the statement, but still closed down 14% at $24-5/8.

Tyson agreed to buy IBP on Jan. 1 after a bidding war with pork company Smithfield Foods Inc. that developed after IBP reached a cheaper deal to take the company private. Tyson pursued the transaction in an attempt to broaden its product line beyond poultry.

The transaction values Dakota Dunes, S.D.-based IBP at $30 a share in cash and stock.

Tyson said the SEC made 45 comments regarding IBP's most recent financial statements, including its accounting for acquisitions. It is believed the SEC raised the issues as it was reviewing IBP's original deal to be taken private in a buyout led by DLJ Merchant Banking, traders and analysts said.

“We will carefully monitor this situation to determine what impact, if any, the resolution of these questions related to past accounting practices will have on the financial statements and business,” Tyson Chairman John Tyson said in a news release.

Springdale, Ark.-based Tyson also criticized IBP's special committee that handled the takeover for not disclosing the accounting issues in the final days of negotiations for the deal. Tyson said the U.S. Securities and Exchange Commission contacted IBP about the issues on Dec. 29, but that it was not informed until Jan. 10.

“As you know, we strongly believe this information should have been disclosed to Tyson prior to our negotiation,” Tyson general counsel Les Baledge wrote in a letter.

An IBP spokesman said the company's management was not aware of the SEC issues until after the Tyson deal had been reached.

Wall Street experts said it was difficult to assess the potential impact of the probe, noting the exact nature of the SEC concerns had not been disclosed. They also said any potential dispute between Tyson and its target could have negative implications for an eventual blending of the companies.

The SEC declined comment.

“I think Tyson's got a right to be mad. But at the end of the day, I don't think this is a deal breaker,” said John McMillin, an analyst at Prudential Securities.

Tyson extended its cash tender offer for 50.1% of IBP's shares to Feb. 7 and said it would delay any closing of the tender. The tender offer had been set to expire at midnight Jan. 24.

It also said it would not start an exchange offer for the remaining shares until the matter was resolved.

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