001236 IBP Asks Holders to Wait on Tyson Offer

Chicago - IBP Inc. urged shareholders to await its recommendation on a tender offer from Tyson Foods Inc., a bid aimed at quickly ending a battle over IBP.

Tyson, the No. 1 chicken processor, said it was starting an offer for 50.1% of IBP shares to buy the company for $2.8 billion in cash and stock, even though it has yet to reach a deal with the IBP committee that is examining bids. The company is starting the offer to try to speed an antitrust review of the bid by regulators, Tyson said.

But analysts, and rival bidder Smithfield Foods Inc., said the move was made to force the hand of Smithfield, the No. 1 pork processor, in a bidding war that began more than two months ago. An investor group that included IBP management proposed a $2.4 billion buyout of the company.

“I think you want to close the window of opportunity for Smithfield to come back,” said Paul Korngiebel, a portfolio manager with Brandes Investment Partners, which owns about 9% of IBP's shares.

Tyson Sees Cost Cuts

Tyson said it will offer shareholders $26 a share for up to 50.1% of the outstanding stock of Dakota Dunes, S.D.-based IBP. It also said it identified $100 million in cost savings it could make in purchasing, administrative expenses and other areas if it acquired IBP. Those savings could help the deal add 30% to Tyson's earnings, the company said.

On Tuesday, IBP said a special committee of directors will advise shareholders on how to respond to the offer within 10 business days. Stockholders were urged to wait until then before acting on the offer, IBP said.

Tyson said its tender offer had several conditions, including reaching a merger agreement with IBP. The offer is set to expire Jan. 10.

Tyson's stock fell 1/2 to $11-3/4 on the New York Stock Exchange. This is lower than the $12.60 to $15.40 collar that was included in its proposal to IBP, raising the prospect that Tyson will have to sweeten its offer before IBP accepts.

Tyson is trying to sell its deal by showing it can close faster and have less uncertainty than Smithfield's $2.7 billion offer, which could face greater antitrust scrutiny, analysts said. Critics argue the a merger with IBP would give Smithfield too much control of the U.S. pork market, although some lawmakers have called for a close look at either proposed deal.

“They're trying to start the clock running,” said John McMillin, food industry analyst at Prudential Securities. “They're trying to make it a speed contest.”

IBP shares declined 3/8 at $25-1/2 on the NYSE, near their 52-week high of $25-14/16, which was set Monday and well above the 52-week low of $11.

Smithfield Still Evaluating

Smithfield said it will continue to work through its due diligence evaluation of IBP and to work with the IBP board committee, evaluating its next steps accordingly.

“Tyson's tactic appears designed to short-cut the Special Committee's efforts to find additional value for IBP shareholders and to coerce IBP shareholders into turning over corporate control to Tyson,” Smithfield said in a statement.

Smithfield, Va.-based Smithfield's shares dipped 50 cents to $29.70 on the NYSE. The stock has a 52-week range of $14.88 to $31.75.

Analysts said IBP shareholders would best wait before tendering shares to Tyson.

“I still think that there's a good likelihood of Smithfield coming back with a higher bid,” Midwest Research analyst Christine McCracken said.

Tyson said on Tuesday that the commencement of its offer was not objected to by the IBP special committee because the Tyson offer is conditional on an agreed upon definitive merger agreement.

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