Tyson, IBP File Lawsuits as Merger Collapses

Although Springdale’s Tyson Foods Inc. pulled the plug on its three-month effort to acquire IBP Inc., the South Dakota meat packing giant is not letting the poultry power leave without a fight.

On March 29, Tyson nixed the purchase agreement the companies made Jan. 1. But five deadlines Tyson had set for the deal to be completed passed as the Securities and Exchange Commission probed into accounting inaccuracies at IBP subsidiary DFG Foods in Chicago.

Upon announcing it was backing out of the deal, Tyson filed suit in Washington County Chancery Court alleging that IBP’s senior management gave “materially false” representations and warranties concerning the company’s bookkeeping.

Tyson seeks to recover “all monies paid or advanced by Tyson under the merger agreement,” including the $66.5 million breakup fee it paid a Credit Suisse Group DLJ unit after its deal to buy IBP was scrapped.

The lawsuit also accuses IBP management of concealing the SEC’s inquiry into DFG’s various financial filings as part of a “plan to artificially raise the price of its common stock and lure Tyson into vastly overpaying for IBP.”

IBP filed a suit of its own in a New Castle County, Del., Chancery Court, attempting to force Tyson to complete the purchase. IBP officials said Tyson was warned before the Jan. 1 agreement that IBP would take a pretax charge between $30 million and $35 million because of its DFG plant. That charge eventually became $44.9 million.

DFG is an appetizer unit of IBP whose accounting practices the SEC investigated.

“Tyson’s actions are completely unjustified by anything that has transpired and we will do what is necessary to protect our shareholders and our company,” Robert L. Peterson, IBP chairman and CEO, said in a statement the day after Tyson’s announcement.

Peterson and other IBP officials were introduced as a special guest at the Tyson shareholders’ meeting in January.

Since Thursday’s announcement, IBP’s stock has plummeted. It reached a high of $22.94 before the announcement by Tyson March 29. As of mid-morning today, it had dropped to $15.50.

Meanwhile, Tyson shareholders have enjoyed an increase. At market’s close March 29, Tyson stock was at $11.50 per share, while it closed at $13.47 by close March 30. It was at $13.06 by mid-morning today.

Analyst George Dahlman of U.S. Bancorp Piper Jaffray raised his rating on Tyson to “buy” from “neutral,” adding that he was “pleasantly surprised” by Tyson’s decision.

“We had not been in support of this from the outset,” Dahlman said, raising his 12-month target price on Tyson stock to $17 from $13.