Tyson Foods Jumps into IBP Bidding Fray at $2.8 Billion

Tyson Foods Inc., the biggest U.S. poultry producer, escalated a bidding contest for IBP Inc. on Monday by offering $2.8 billion in cash and stock for the nation’s No. 1 beef supplier.

IBP investors would get $26 for each IBP share, half in cash and half in Tyson stock. The bid is 17% higher than an October buyout offer from IBP managers and 4% more than an all-stock, $25-a-share bid last month by Smithfield Foods Inc., the top U.S. pork producer. Under each deal, the buyer also would assume $1.4 billion in IBP debt.

Tyson wants to expand into beef and to accelerate IBP’s move toward marketing meat under national brands and in small packages ready for grocery shelves, which have bigger profit margins than bulk sales of beef or pork.

The lure of Tyson’s half-cash offer and the potential of IBP to boost profit in the slow-growth meat industry may prompt Smithfield to boost its bid, analysts said.

IBP shares, which have risen by more than one-third since the first takeover bid was announced in October, rose $2.25 to close at $25 on the New York Stock Exchange.

Tyson stock, which has risen 44% in the last two months in anticipation of an end to the slump in chicken prices, fell $1.50 to close at $12.50, also on the NYSE. Smithfield shares closed up 82 cents at $29.38 in Big Board trading.

Smithfield’s offer for IBP, its biggest rival in the pork business, raised antitrust concerns from farm lobbying groups and regulators. Smithfield offered to shed some pork assets if its bid is approved. Adding IBP would make Smithfield the largest U.S. meat company.

Smithfield, Va.-based Smithfield produces about 20% of the nation’s pork, compared with 18% for IBP, the Dakota Dunes, S.D.-based company that also produces about one-third of U.S. beef. Springdale, Ark.-based Tyson accounts for about one-third of the chicken market.

“Our proposal avoids significant regulatory risk,” Chairman John Tyson said in a letter to IBP. The Smithfield offer “will cause direct regulatory scrutiny and likely require significant asset divestitures.”

If Tyson can acquire IBP, it may create a dominant fresh meat company with a national brand name and supply grocers with the three most popular items in the meat case: chicken, beef and pork.

In October, a DLJ-led group that included IBP managers and Archer Daniels Midland Co. offered to buy IBP for $22.25 a share, or $2.4 billion in cash. Last month, Smithfield offered $2.7 billion for IBP.