Last Man Standing

Tyson Determined to Fight for IBP

Although the immediate concern for Tyson Foods is getting its offer to purchase IBP Inc. approved by the Securities and Exchange Commission, Tyson faces the eventual task of integrating beef into its poultry empire.

If the deal is completed, Tyson will become the nation’s leading poultry, beef and pork producer.

John Tyson, who became president and CEO in April, said IBP’s management team would remain intact after the acquisition. During the merger period, that would help a company that is laden with personnel with expertise in chicken and pork, but not beef.

He said that combining chicken, beef and pork operations with IBP “would not hamper the competitive nature of our markets or restrict sales opportunities for farmers and ranchers.”

Others are not as confident.

George Hall, president of the cattlemen’s association, recently expressed his concerns regarding Tyson becoming the leader in multiple areas of the meat industry.

“While Tyson has been very successful processing and marketing poultry, beef is unique, and we are interested in the company’s vision for the beef industry.”

Tyson has helped chicken to become the most consumed meat in the United States over the last 15 years.

U.S. Sen. Paul Wellstone, D-Minn., has perhaps been the most outspoken politician on the possible merger.

“This merger is cause for great concern among millions of American rural families,” Wellstone said. “Concentration and consolidation in agribusiness makes it difficult for family farmers to earn a fair price for their product. Every month, more and more family farms are put on the auction block. Every month, more and more family farmers are being forced to give up their life’s work, their homes and their communities.

“The upsurge in mergers, acquisitions and anti-competitive practices in the agricultural economy has undermined the marketplace competition farmers depend on. We need to have an immediate timeout on mergers and acquisitions of large agribusinesses.”

Iowa senators also said they were worried about Tyson pushing the small cattle farmer out of business.

Tom Harkin of Iowa, the ranking Democrat on the Senate Agriculture Committee, wants consolidation to slow in the agriculture industry.

“I remain deeply concerned about the future of family farms,” Harkin said.

And Sen. Charles Grassley, R-Iowa, expressed similar worries.

“I’m concerned that the proposal will increase the amount of concentration in the meatpacking industry to the point where it will hurt the independent farmer trying to get fair prices for their products,” Grassley said. “That’s why I believe we need some changes to the antitrust or agriculture competition laws so that more intense scrutiny is placed on ag mergers.”

Paul Olson, president of the National Farmers Organization, said, “A Tyson buyout of IBP would create a pork, beef and poultry powerhouse that could not only control the world’s red and white meat industry, but also drive independent producers completely out of business.”

But John Lea, chief marketing officer and executive vice president of Tyson, rebutted such contentions.

“We have no intention of setting up corporate farms or vertically integrating beef and pork operations at IBP,” Lea said.

The integration of beef by Tyson could cause other potential problems down the line. What if there were an E-coli outbreak on the beef side? How would that affect sales of chicken and pork products under the Tyson roof?

“That will be something that will be a constant consideration no matter what business we’re in,” Tyson spokesman Ed Nicholson said. “We’ve taken a lot of care for protection of our Tyson brand. We have a great deal invested in quality insurance. [E-coli] is one of the hazards.”

Tyson is likely to separate its advertising of chicken and beef products, much in the same manner it has with its chicken and pork. Nicholson said it was “way to early” to discuss how Tyson would approach its advertising scheme.

What’s the holdup?

With the acquisition still pending more than a month after IBP’s initial acceptance, John Tyson has more answers for integrating beef into his company than he does for getting the deal through the intense scrutiny it has faced nationwide. Everyone from U.S. senators to the head of the National Cattlemen’s Beef Association has had varying opinions on the Tyson proposal.

The U.S. Securities and Exchange Commission will have the final say, but its investigating of IBP’s accounting practices are the reason for the delay.

The SEC inquiry centers on DFG Foods of Chicago, a company IBP purchased for $32 million in 1998. DFG, a maker of hors d’oeuvres, had bookkeeping irregularities, according to the Chicago Tribune. IBP said it would try to clean up the accounting flaws, adding that it could take as much as $47 million in a pretax charge against 2000 earnings.

Some analysts have speculated Tyson may now want to renegotiate its offer since it was not made aware of the accounting problems by IBP during a review of the company’s books in December.

John McMillin, an analyst for Prudential Securities Inc. in New York, said, “The market is worried that Tyson is chickening out.”

Officials at both IBP and Tyson say they are still confident the deal will be completed soon, although analyst Jeffrey Kanter, also of Prudential Securities, said Tyson was beginning to act as if it were “getting cold feet.”

The $3.2 billion offer from Tyson finally cleared U.S. regulatory review Jan. 29, but there are still several hurdles before the deal is finished. The original offer was made Dec. 4, and, since IBP’s acceptance Jan. 1, three expiration dates have been set for the deal to close, with the latest on Feb. 7.

Andy Wolf, an investment analyst with Scott & Stringfellow, said the SEC was acting like a housing inspector on the deal.

“IBP owns the house, and Tyson is looking to buy it,” Wolf said. The SEC, he said, “came in and looked at what IBP was presenting to Tyson and found several flaws. IBP must have known about these flaws, but they obviously didn’t tell Tyson.” n