010404 Tyson, IBP Both Retreat as Court Face-Off Looms

New York - Shares of Tyson Foods Inc. and IBP Inc. both retreated as investors braced for a prolonged court battle between the one-time merger partners.

IBP, a Dakota Dunes, SD-based meat packing firm, shed $1.08, or 6.7%, to $15.30 in early afternoon trading on the New York Stock Exchange. The loss follows a more than 28% decline in the meat packing company's stock on Friday after Tyson announced it was breaking off the company's $3.2 billion union.

Tyson, meanwhile, lost 42 cents, or 3.1%, to $13.05, also on the NYSE. The company's stock had climbed 17 after it walked away from the deal.

The declines came as investors digested a flurry of events that has seen the once-promising merger move from the boardroom to the courtroom.

Tyson struck first in court, filing a lawsuit last Thursday against its ex- merger partner that alleged IBP filed ``false and materially misleading'' financial reports that dated back nearly a year, according to the company's complaint.

The Springdale, Ark.-based poultry giant is asserting IBP ``artificially'' raised its stock price in advance of the companies' merger discussions last December ``to lure Tyson into vastly overpaying'' for the company, court documents filed in Arkansas Chancery Court show.

Tyson, the No. 1 U.S. poultry producer, alleges IBP boosted its stock price by filing ``misleading'' quarterly financial statements the company would twice have to restate due to accounting regularities at DFG Foods Inc., a producer of appetizers and hors d'oeuvres acquired in late 1998.

Further, Tyson asserts IBP lawyers received a letter from the U.S. Securities and Exchange Commission on Dec. 29 announcing an investigation into accounting irregularities at DFG, as well as the company's financial reports from 1999 and 2000. That letter, Tyson says, came three days before the companies' merger agreement was signed but never disclosed.

IBP eventually did have to take a pretax $60.4 million charge against DFG's goodwill carrying value on its 2000 fourth-quarter earnings and an additional $44.9 million pretax charge to account for misstatements and accounting irregularities at DFG. But company officials contend those charges were related to an internal investigation and not the SEC probe, which the company says focused on different issues.

IBP also restated its financial results for the first three quarters of 1999 because of DFG's troubles, and later said its 2001 first-quarter profit would fall well short of analysts' expectations, although that shortfall was blamed primarily on higher cattle prices.

IBP, which counter-sued Tyson in Delaware Chancery Court ON Friday, maintains it kept kept Tyson management well informed of the ongoing probe and possible DFG write-offs during negotiations, even disclosing that a write-down of $30 million or more would likely be necessary because of previous accounting problems there.

The SEC letter in question was faxed to outside legal counsel for the special committee reviewing IBP acquisition offers, but was determined to focus primarily on a previous merger arrangement and set aside to focus on the Tyson negotiations, IBP said.

Company officials said IBP's full board did not receive a copy of the letter until after the merger agreement was signed on Jan. 8 and then ``promptly'' forwarded the letter to Tyson.

The IBP lawsuit is asking the court to force Tyson to honor the companies' merger agreement.

Tyson, in its suit, is seeking an undisclosed sum to cover the company's costs and expenses during the negotiation and merger approval process, including reimbursement for the $66.5 million fee Tyson paid to break up a previously signed merger agreement between IBP and a group of private investors.

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