010305 Tyson Delays IBP Deal, Awaits Probe Results

Chicago - Poultry giant Tyson Foods Inc. said it will scrap part of its program to acquire meat processor IBP Inc., a move that will delay but not derail the merger of the two food companies as Tyson awaits the result of a federal probe into IBP's accounting practices.

Springdale, Ark.-based Tyson said it will drop a tender offer for 50.1% of IBP and work instead on a cash election merger in which IBP investors can choose cash or Tyson stock for their shares in the proposed $3.2 billion deal.

Under provisions of the original acquisition deal, that step was automatic if the tender were not completed by Wednesday, the company said.

"What this does is allow them to delay the process," said Midwest Research analyst Christine McCracken. "It really doesn't change anything."

Under the tender offer, Tyson was to pay $30 a share in cash for 50.1% of IBP's shares and $30 a share in stock for the rest.

The decision to terminate the tender offer was not a surprise, analysts said, and Tyson may negotiate a lower price for IBP, depending on results of the Securities and Exchange Commission accounting probe.

"Tyson's move is a smart one, in our view, since we believe the current investigation may lead to a renegotiation of terms," Leonard Teitelbaum, food industry analyst at Merrill Lynch, said.

Once IBP has come to a resolution with the SEC, Tyson will determine what effect the investigation has on its proposed acquisition.

Last week, IBP said it will take a one-time charge of up to $108 million related to DFG, a Chicago-based hors d'oeuvres and appetizer maker acquired in 1998, and may take additional charges as part of the SEC probe which includes the DFG acquisition.

The accounting issues came to light after Tyson won the bidding war with pork processor Smithfield Foods Inc. for Dakota Dunes, SD-based IBP.

"Clearly Tyson wants to make sure they know what they're getting," said Credit Suisse First Boston food industry analyst David Nelson, "because things aren't as they apparently were presented to be at the time they cut the deal on Jan. 2."

IBP shares closed down 75 cents at $26.55 Wednesday. The stock set a 52-week high of $29.3124 in January, about two weeks after the deal was announced.

Tyson shares closed down 19 cents at $12.61. That stock set a 52-week high of $14.63 in November and has come down from that level since it agreed to buy IBP.

"IBP continues to work with the SEC to resolve their accounting issues," John Tyson, chairman and chief executive officer of Tyson Foods, said in a news release. "After that work is complete, we will determine what effect these matters will have on our deal."

But pursuing a cash merger will delay the deal as Tyson will have to file a prospectus with the SEC that includes IBP's restated financial results. The deal will now also need special votes by Tyson and IBP shareholders before it is approved, Tyson said.

If Tyson seeks a lower price, it could open the door for Smithfield, Va.- based Smithfield to take another shot at IBP, analysts said.

"Smithfield has a habit of buying the (IBP) stock anytime it goes below $25" and could make another bid if the stock falls that far again, Prudential Securities food industry analyst John McMillin said.

But IBP reaffirmed its desire to complete the Tyson deal.

"While the process for completing this transaction will now change, the basic terms of the agreement do not," IBP said in a statement. "We join Tyson officials in reaffirming our desire to complete this transaction as promptly as possible.

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