Tyson and IBP Try to Shift Blame for Failed Merger

The chairman of IBP Inc. continued to call Tyson Foods Inc. chicken for backing away from its original plan to acquire IBP during the second week of testimonies in a Wilmington, Del., Chancery Court.

Tyson and IBP reached a $4.7 billion merger agreement Jan. 2, but Tyson eventually pulled its offer March 29 following the passing of five deadlines Tyson had set to have IBP’s accounting problems ironed out with the Securities and Exchange Commission.

IBP chairman Robert Peterson is trying to force Tyson to complete its part of the deal.

Tyson alleges IBP failed to notify the Springdale company of the SEC’s probe into bookkeeping practices by DFG Foods of Chicago. DFG, a canape, kosher foods and appetizer subsidiary of IBP, makes up less than 1 percent of IBP’s annual sales.

Peterson said he told Tyson in a Dec. 8 meeting that DFG was being investigated and that DFG was “a big, black hole.”

“[Tyson officials] knew, and if that bothered them, then don’t sign,” Peterson said. “Say, ‘Sorry, I’m out of there.'”

DFG was found to have faked invoices, overstated inventories and listed non-collectible items as receivables.

Peterson also said the SEC did not contact IBP of the DFG probe until Jan. 8.

“I was extremely upset at the situation; I was extremely embarrassed,” Peterson said. “I was livid about it. If I’ve got a problem and I don’t know about it, I’m not a happy camper. It’s an unconscionable act.”

Tyson officials, including president and CEO John Tyson, took the stand May 22.

John Tyson said he was asked to be a “white knight” by financier George Gillette and rescue IBP. Gillette did not want IBP to be acquired by Smithfield Foods of Virginia. Tyson won the bidding war against Smithfield. Tyson, who was to return to the stand May 24 when the trial resumed, said he told Gillette he would “sleep on it.”

Tyson Foods CFO Steven Hankins said on stand that the company was made aware of DFG’s “red flags” in December.

Hankins added that Don Tyson, John’s father and senior chairman of the company, asked company executives at a February meeting for their thoughts on mad cow disease. The contaminated beef had developed a widespread panic in Europe and their was some fear it may reach the United States. Then, in March, Hankins said Don Tyson expressed concern about IBP not meeting its financial projections. Hankins testified that Don Tyson said he felt “the best thing to do was to find a way to withdraw” from the IBP merger.

A combination of Tyson and IBP would have created a company with 30 percent of the beef market, 33 percent of the chicken market and 18 percent of the pork market.

On May 24, Tyson’s stock was at $12.86 per share, up $1.36 per share from the March 29 price of $11.50. Meanwhile, IBP was at $17.40, down $5.39 per share from the March 29 closing of $22.79.