IBP files countersuit against Tyson
Following Tyson Food’s decision last week to abandon its acquisition of IBP, the US’s largest meat packer, the latter company has filed a countersuit in the Delaware courts, compelling Tyson to go through with the $3.2 billion deal.
When Tyson broke the news on Thursday, it also filed a lawsuit against IBP in Arkansas, alleging that it "was inappropriately induced to enter into the merger agreement," and that "materially false" representations and warranties had been made by IBP senior management about the company's books. Tyson – the world’s largest poultry producer - accuses IBP’s management of concealing various aspects of a U.S. Security and Exchange Commission investigation into the company, as part of a "plan to artificially raise the price of its common stock and lure Tyson into vastly overpaying for IBP."
The SEC investigation related to IBP’s acquisition last year of a Chicago-based hor-d’ouvres producer, DFG Foods, for which IBP took an impairment charge of $44.9 million in the final quarter of last year. Nine days prior to last Thursday’s announcement, the SEC said that it had uncovered potential manipulation of financial records and product theft at DFG, and mismanagement by former unit managers.
IBP has called Tyson's actions "unjustified" and that in any case, because DFG accounted for less than 0.5% of IBP's sales in 2000, its problems had little bearing on the wider deal. Tyson was kept fully aware of the DFG situation every step of the way, said IBP, and that an impairment charge of ‘at least $30 million’ would have to be paid.
In a statement on late Friday afternoon, Robert L. Peterson, IBP chairman and chief executive officer, said: "We can only speculate that this is a classic case of 'buyer's remorse,' because there is clearly no basis for Tyson's claim that it (the deal) was fraudulently induced and does not have to proceed with this transaction."
For its part, Tyson is now seeking to recover "all monies paid or advanced by Tyson under the merger agreement," including the $66.5 million break-up fee it had to pay to Credit Suisse Group DLJ when the deal was scrapped.
By close of business on Friday, IBP shares had fallen 28% to $16.40 on the New York Stock Exchange, fuelling speculation that a previous suitor, Smithfield Foods Inc., might step back into the bidding for the company. IBP rejected Smithfield's $32 a share all-stock bid on January 1 2001, in favour of Tyson’s $30 cash-and-stock offer. If Smithfield does bid again, however, it is highly likely that its offer will be substantially lower.
In contrast, Tyson stock has soared. The deal never attracted strong support among analysts, and many industry observers consider that Tyson has done the right thing in backing out. At 4 p.m. EST on the New York Stock Exchange on Friday, shares in the company were up $1.97, or 17%, at $13.47.
A combination of Tyson and IBP would have created a company with 30% of the beef market, 33% of the chicken market and 18% of the pork market.
