010637 Judge Rules Tyson Must Uphold IBP Buyout

Chicago/Wilmington, DE - Tyson Foods Inc. must uphold its agreement to buy IBP Inc., a Delaware chancery court judge ruled.

Springdale, Arkansas-based Tyson in March walked away from a deal to buy IBP for $3.2 billion, citing numerous breaches of IBP's merger agreement, including alleged accounting irregularities at a Chicago-based hors d'oeuvre subsidiary. Another IBP suitor, pork producer Smithfield Foods Inc., was outbid.

In his opinion, Vice Chancellor Leo Strine found that Tyson had all the information it needed to make an informed decision about purchasing IBP, but subsequently backed out of the agreement because of buyer's remorse. The judge also ordered the two sides to work out an agreement to complete the merger.

“I think you can understand how the judge got to his decision,” said Salomon Smith Barney analyst Jaine Mehring. “Quite frankly, even if you weren't in the courtroom and you were just reading snippets of testimony coming out during the trial, it seems there were a number of smoking guns with Tyson.”

Tyson said in a press release that it was too soon to weigh in with a statement on the Delaware state court's opinion, and that it was reviewing the court documents.

Dakota Dunes, South Dakota-based IBP said that its officials were “extremely pleased.” Company Chairman Robert Peterson said the court's finding “is the most appropriate outcome for our company as well as our shareholders.”

IBP SHARES UP SHARPLY IN AFTER HOURS TRADE

IBP shares were immediately quoted sharply higher in after-hours trading, jumping to $21.36 from a regular-session close of $18.27 on the New York stock Exchange. Tyson closed down 5 cents at $11.38, also on the New York stock Exchange.

Strine found that Tyson raised its bid $4 a share in an auction with Smithfield Foods, despite detailed knowledge of accounting problems at DFG and IBP's financial outlook. It also trumpeted the deal to analysts and its stockholders.

“During the auction process, Tyson was given a great deal of information that suggested that IBP was heading into a trough in the beef business,” Strine wrote. “Even more, Tyson was alerted to serious problems at an IBP subsidiary, DFG, which had been victimized by accounting fraud to the tune of over $30 million in charges to earnings....”

He added he did not believe that a DFG probe and IBP's financial results in the fourth quarter of 2000 and the first quarter of 2001 constituted a material adverse affect on IBP's financial condition that could allow Tyson to back out of the deal.

Tyson also knew that IBP's earnings would likely fall sharply short of the fiscal 2000 projections made by its CFO in August 2000, Strine wrote.

“But the most important reason that Tyson slowed down the merger process was different: it was having buyer's regret,” Strine wrote. “Tyson wished it had paid less, especially in view of its own compromised 2001 performance and IBP's slow 2001 results.”

ORDERED TO WORK TOGETHER

Strine ordered the two sides to work together on an agreement to complete the deal, which would result in a company with combined sales of about $24 billion and the leading marketshare position in beef and poultry in the U.S.

He noted that Tyson is still interested in IBP, though it would prefer paying a lower price.

The judge rejected the alternative of awarding IBP damages instead of having Tyson complete the deal, saying that it would be a long, difficult process to determine how much Tyson should pay.

Strine said that the two sides should present a potential agreement to him by June 27.

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