Judge Says Tyson and IBP Must Merge

Calling it “buyer’s regret,” a Delaware judge told Tyson Foods Inc. of Springdale to go through with its $4.7 billion purchase of IBP Inc., which will result in the largest meat-producing company in the world.

Tyson Foods said it won’t appeal the June 15 ruling by Vice Chancellor Leo E. Strine of the Delaware Chancery Court.

Tyson Foods is the largest poultry company in the world. IBP, of Dakota Dunes, S.D., is the largest beef and pork producer in the United States.

After the ruling, U.S. Sen. Tom Johnson, D-S.D., urged the Bush Administration to review the “merger” because he said it will reduce competition in the livestock market.

After making it clear that he believes Tyson Foods had breached its contract to purchase IBP, Strine gave the two feuding food giants until June 27 to work out a resolution on their own.

John Tyson — chairman, president and CEO of Tyson Foods — had been joking and confident during the trial, but he changed his tone about IBP after Strine’s ruling.

“We are satisfied that IBP’s accounting issues have been resolved and have every confidence in [IBP President] Dick Bond and his management team,” Tyson said.

IBP attorneys had argued that John Tyson’s father, Don Tyson, 70, senior chairman of Tyson Foods, had stepped in “between fishing trips” to squelch the deal. IBP’s earnings earlier this year were hurt by the general state of the economy and industrywide concerns over mad-cow disease and foot-and-mouth disease. Those factors, along with an SEC investigation of the company’s DFG Foods subsidiary in Chicago, might have prompted the elder Tyson to step in.

Tyson and IBP reached an agreement on Jan. 2 for a $4.7 billion merger, which included $1.5 billion in assumed IBP debt. But five deadlines set by Tyson passed before Tyson finally called off the deal March 29.

IBP immediately filed suit to enforce the agreement.

In a 146-page decision, Strine said a decline in IBP’s earnings didn’t amount to a “material adverse change,” known as a MAC — a clause that could have allowed Tyson to cancel the deal. He said Tyson was well aware of accounting problems at IBP’s DFG unit.

Tyson “was having buyer’s regret,” Strine wrote in his decision. “Tyson wished it had paid less, especially in view of its own compromised 2001 performance and IBP’s slow 2001 results.”

The June 15 ruling could have a major impact on future buyouts and mergers. Lawyer Dennis Block of Cadwalader Wickersham & Taft, a New York firm, told The Wall Street Journal, “I think people will start to be more specific with respect to what they mean by ‘material adverse change.’ “

In the first day of trading after the judge’s ruling, IBP’s stock soared, and Tyson’s plummeted.

Tyson’s stock dropped $2.01 to $9.23 per share by the end of the day June 18. By that time, IBP’s shares were trading up 33 percent for the day ($6.08) to $24.35 per share.

John Tyson said his company held further discussions June 17 with IBP representatives, and he did not foresee an appeal to Judge Leo Strine’s ruling.

If and when the deal is completed, it will create a meat-processing powerhouse with 30 percent of the beef market, 33 percent of the chicken market and 18 percent of the pork market.

Some analysts still believe a Tyson-IBP deal will be the best move Tyson could have made.

“I think it would still be in Tyson’s best interest to go ahead with the merger,” said Christine McCracken, senior food and agriculture analyst at Midwest Research. “It’s a question of whether or not they can work together.”

John Tyson said his company and IBP “harbor no resulting ill will.”

If the two sides cannot reach an agreement, Strine could impose his own merger plans.