010372 IBP Expects Tyson to Complete Buy

Little Rock, AR - Meatpacking giant IBP Inc. expects Tyson Foods Inc. to complete its $3.2 billion purchase of the South Dakota-based company now that regulators have completed a review of IBP's financial records.

“We have resolved some accounting issues that Tyson has cited in delaying its purchase of IBP,” said IBP spokesman Gary Mickelson. “We expect the transaction to move forward to its completion.”

Tyson spokesman Ed Nicholson said the company would continue to monitor developments. He said it was too early to determine the effect of the latest IBP announcement.

Already the nation's leading poultry producer, the merger would make Tyson the top beef and pork producer.

Analysts said they doubt Springdale-based poultry giant will pay the $30 per share in cash and stock agreed to earlier, putting the price at $1 to $4 below that figure now.

IBP said in a statement Tuesday that an investigation related to the company's appetizer unit, DFG Foods, uncovered potential manipulation of financial records and product theft, and mismanagement by former unit managers. The review was prompted by an inquiry from the Securities and Exchange Commission .

Mickelson said his company cannot release details of its investigation because the investigation may result in legal action.

The findings of the investigation led to a $60.4 million charge against IBP's fourth-quarter earnings, released Tuesday. That was less than the $108 million previously estimated. For the quarter ended Dec. 30, IBP lost $6.25 million, or 6 cents per share, compared with earnings of $76.59 million, or 71 cents per share, in the year-ago period.

Fourth quarter sales rose 7% to $4.4 billion. Excluding the charge and other one-time items, the company had a profit of $35 million or 33 cents per share. Analysts surveyed by First Call/Thomson Financial had estimated earnings would be 40 cents per share.

Tyson's agreement to buy IBP was announced Jan. 1, after a bidding war with Smithfield Foods. But the acquisition, under which Tyson also will assume $1.5 billion in IBP debt, has been delayed several times.

Analysts said that with the new documents, the $30 per share price for IBP will likely be reduced.

“After they assess the numbers, Tyson can decide what price they would pay for IBP,” said Stephens Inc. analyst Berry Summerour. “It's in their court right now.”

He said he expected Tyson to reduce its offer and estimated it would be $26- $29. “That's a wide range and it's difficult to pinpoint exactly,” he said.

Analyst John McMillin of Prudential Securities Inc. in New York said he expected a price concession of $1 to $1.50 per share.

Separately Tuesday, Tyson lowered its forecast for its second quarter, saying it expects earnings to be “at or near break even” for its quarter ending March 31. The company previously projected it would earn 6 to 10 cents per share. The First Call estimate was for earnings of 9 cents per share.

The Tyson revision includes charges related to a product recall and to its divestiture of a North Carolina hog operation. Also, winter weather was worse than expected and will reduce earnings, the company said.

“Sales volumes remained strong while we have faced the most difficult operating environment we've seen since 1981,” Tyson chairman and CEO John Tyson said. The company is reducing its cost structure, managing its produce mix and working to build its core sales, he said.

Tyson said the worst effects of the winter are over and the chicken market will improve.

Although the modest negative earnings revision is not a positive, he said, his company believes that Tyson's stock “should be driven more by the pending merger with IBP.”

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