010821 Tyson-IBP Expects $25.7 Billion RevenueAugust 8, 2001Chicago - Poultry giant Tyson Foods Inc. said its marriage to beef and pork processor IBP Inc. will create the world's largest meat company with annual revenues of $25.7 billion. The $2.9 billion acquisition, expected to close in October, is forecast to generate savings of at least $50 million in fiscal 2002, the first full year of operations, Tyson officials said in a conference call. “Our new company will simply be the world's largest provider of protein, the world's largest marketer of beef, chicken and pork,” Chief Executive John Tyson said. “Our goal is not just to be the biggest, but to be the best provider of beef, chicken and pork as well as our other food products.” The company said IBP Chairman and Chief Executive Robert Peterson will retire from active management but remain as a member of Tyson's board. Tyson expects to make more management changes and may divest some parts of the combined operations that do not perform up to expectations, Tyson said. Springdale, Arkansas-based Tyson said it expects earnings for fiscal 2002, ending Sept. 30, 2002, of 90 cents to $1 per share, which includes the $50 million in expected savings. The company expects to save up to $200 million in the third full year. Most deal-related charges are included in the overall cost, with the rest expected in fiscal 2001, the company said. The deal also includes $1.08 billion in assumed IBP debt. The companies first announced a deal in January after Tyson outbid Smithfield Foods Inc. for IBP. However, Tyson tried to back out in March, citing financial irregularities at an IBP subsidiary. A Delaware judge forced Tyson and IBP back together and the companies announced a new deal in June. Dakota Dunes, South Dakota-based IBP will be a wholly-owned subsidiary of Tyson. ORGANIZATIONAL, STRUCTURAL CHANGES PLANNED In addition to Peterson's retirement, Tyson announced some management changes and said more organizational changes will be announced over the next four to five weeks. Tyson Chief Operating Officer Greg Lee and IBP COO Richard Bond will serve as co-chief operating officers and group presidents. Steve Hankins will remain Tyson chief financial officer. Tyson expects to announce within 30 to 60 days whether some parts of the combined company will be sold off. “We have already done a fair amount of development work and we want to understand which components fit the net business model and will do what is appropriate in either selling those assets or making sure that they make a better return on our money,” Tyson said. Tyson expects to generate significant savings in procurement and plans to start integrating support services immediately, the company said. “The buying ability of the combined company is enormous,” Tyson said. Capital spending is expected in the range of $400 million to $450 million for 2002, Hankins said. The financial projections do not include amortization of goodwill, he said. FEW DIVESTMENTS LIKELY -- ANALYST “I can't imagine what would be divested, there really isn't anything that doesn't fit with the new combined company,” said Christine McCracken, food analyst at Midwest Research. McCracken said she would not expect Tyson to sell too many components, or make huge job cuts, though it would be logical to combine some administrative jobs, and equipment and bulk feed purchases. Tyson's revenue projections are in line with the U.S. Bancorp Piper Jaffray forecasts, food analyst George Dahlman said, noting that the firm has a “neutral” rating on Tyson. “I think they know they paid too much for (IBP),” Dahlman said. “They tried to get out of it and couldn't, so they have to put their best foot forward.” Tyson and IBP were hit with state and federal shareholder lawsuits with various claims including that IBP accepted too low a bid and that Tyson's attempt to back out was merely a ruse to renegotiate the deal it had already signed. The state claims were settled last week as part of the agreement. The federal lawsuits remain pending.
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