001135 IBP to Use Irradiation in Processing Plant

IBP Corp., the world's largest meat producer, said that it will use at least one of Titan's SureBeam systems to electronically pasteurize beef directly on its production line.

The deal marks a validation for Titan, which has been trying to prove the effectiveness and business plan of its SureBeam system designed to make food safer by using an electronic beam that kills disease-causing bacteria.

"When the world's largest processor of meat endorses your product and intends to install it in their factory, that's obviously a signal to everyone that this provides benefit to IBP, as well as the purchasers of their products," said Stephen Levenson, an analyst who covers Titan for Gerard Klayer Mattison & Co. "IBP has done test marketing. They must feel that consumers are accepting it."

The agreement will have Titan engineers design a way to bring the SureBeam system into IBP's assembly line. Titan would not specify exact how many machines this might include, or when they would be in operation.

Robert Norfleet, an analyst who covers Titan for Davenport & Co., said the deal also proved Titan's pay-for-service model. There has been speculation that food producers would try to buy the systems outright, instead of paying a royalty fee.

"Their business model was somewhat aggressive," Norfleet said. "(They are) not as concerned about selling, but getting a per-pound royalty. That's a business model that assumes you have the upper hand with these companies."

Analysts expect Titan to charge about five cents a pound for the use of the Food and Drug Administration- and U.S. Department of Agriculture-approved system, which can pasteurize processed food at a station on an assembly line in a matter of seconds. According to the company, electronic pasteurization kills all of the bacteria that causes E. coli, salmonella and other food-borne illnesses. Competing pasteurization technologies rely on gamma radiation to kill bacteria.

IBP, along with 75% of the nation's beef producers, have been testing and marketing products processed at a SureBeam facility Titan set up in Iowa. The South Dakota company, which has 49,000 employees, had the option of buying the system.

It is estimated that more than 1,500 stores in 15 different states are selling electronically pasteurized food products, including processors like Cargill, Huisken Meats and Tyson Foods. Schwan's, the largest national distributor of frozen foods, electronically pasteurizes all of its home- delivered beef products that are delivered around the 48 continental states. Electronically pasteurized foods were first put on the market in mid-May at 84 stores.

"IBP could essentially force the other producers to look at SureBeam products," Norfleet said. "You would have to think others are going to have to follow."

The deal also bodes well for Titan's plan of taking SureBeam through an initial public offering of stock, Norfleet said.

Titan is a defense and technology company that also works in information technologies and communications, and an initial public offering has been a point of concern for at least one of its business units.

"(Titan) is a company whose strategy is incubating or merging technologies and spinning them off as IPOs," Norfleet said. "That theory sounded great, but the concern is, people really didn't know if they could get any of those technologies out the door."

The company has already filed its S-1 to take SureBeam public and is on schedule to do so, according to an executive with Titan.

Titan's Cayenta unit, which develops software for businesses, is facing a more difficult time, due to turbulence on the markets for Internet companies, Norfleet said.

"I think Cayenta is on the sidelines for a while," he said. "They are being somewhat stigmatized as an Internet/ B2B consulting company."

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