010568 Tyson Chair Testifies for 2nd Day

Wilmington, DE - John H. Tyson, chairman of Tyson Foods Inc., testified Thursday he had a “gut” feeling that he was being lied to by potential partner IBP Inc. days before the giant chicken processor won the hand of the meatpacker.

“I had concerns,” Tyson, 47, said in his second day on the stand in a two-week trial in Delaware Chancery Court.

But, under questioning from the judge, Vice Chancellor Leo E. Strine Jr., Tyson admitted that he didn't ask for IBP's weekly profit and loss statements during the due diligence process before the merger agreement was signed.

“I didn't think they'd give them to us because we didn't have a signed agreement,” Tyson said.

Nor did Springdale, Ark.-based Tyson review public financial documents that showed the meatpacker was unlikely to meet fourth quarter projections, in spite of the fact that Tyson Foods had completed more than 25 acquisitions and developed a due diligence check list.

Dakota Dunes, S.D.-based IBP, the world's largest producer of fresh beef and pork, wants to force Tyson to honor its $4.7 billion merger agreement.

Tyson walked away from the deal in March saying it was fraudulently induced to enter the transaction. IBP says the chicken processor has a case of buyer's remorse.

Despite feelings in December that he was being misled, Tyson said the company sweetened the offer to $30 per share from $28.50 at the end of December after IBP received a higher offer from Smithfield Foods Inc.

Tyson said the company's earlier bid of $27 was “getting to the end of our rope of how much we could afford to pay for IBP.”

The $30 bid “was the last straw on the scale. It more than stretched the balance of the scale,” Tyson said. Tyson said he pursued the deal because the combined companies could compete better in a consolidating food service industry.

Indeed, Tyson said he had been running numbers of a possible IBP-Tyson combination six months to a year before financier George Gillette approached him about acting as a white knight to IBP.

In response to questions from Strine, Tyson said he was unaware that the merger contract did not put a floor on the possible liabilities at IBP's troubled appetizer and canape subsidiary, DFG Foods of Chicago.

An internal investigation by IBP in the fall had uncovered evidence of bogus invoices, overstated inventories and non-collectible items listed as receivables. Problems at DFG led to an accounting probe by the Securities and Exchange Commission. Tyson cited the SEC's probe when it canceled the transaction.

Tyson testified that he was warned by a member of IBP's special committee to ask about DGF in December meetings with IBP management.

Strine asked Tyson why he didn't “put a box around the (DFG) problem” when considering the merger. The judge went on to ask Tyson if he knew that anything said orally by IBP chairman Robert L. Peterson or president Richard L. Bond during due diligence meetings could not be relied on. Such information had to be set down a written binding contract, he said.

When Tyson replied he did not know about the schedules to the contract, Strine said: “Is that a source of some chagrin?”

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