IBP to Hold Merger Talks With Tyson, Escalating Bidding War

IBP Inc. said Wednesday that it will hold talks with No. 1 U.S. chicken processor Tyson Foods Inc. in a move that could escalate the bidding war for IBP, the world’s largest producer of fresh beef and pork.

A combined Tyson and IBP would create a diversified meat processing powerhouse with more than $21 billion in sales of beef, pork and poultry.

A special committee of IBP directors considering takeover proposals, including one from rival meatpacker Smithfield Foods Inc., told Tyson in a letter released Wednesday that it wants to talk to Tyson about either raising its bid or expanding Tyson’s proposed “collar,” the range of prices at which the offer is valid.

If Tyson widens the collar, a Tyson-IBP merger would be the better deal for IBP shareholders because the offer is half in cash and half in stock, while Smithfield’s bid is all stock, analysts said.

A spokesman for Tyson declined to comment on whether the company would revise its offer for IBP.

“Even if the [Tyson and Smithfield] offers were equal in value, our offer would still be superior because we’re offering half cash and they are not,” said Louis Gottsponer, Tyson’s director of investor relations.

Tyson’s offer, made Monday, initially was worth $26 per IBP share, or $2.8 billion. But Tyson’s stock has fallen below Tyson’s proposed collar of $12.60 to $15.40 a share, reducing the transaction’s value to $2.7 billion, plus the assumption of about $1.4 billion in IBP debt. Tyson shares fell 38 cents on Wednesday to close at $11.75 on the New York Stock Exchange.

Smithfield, the nation’s largest pork producer, last month offered $25 a share in stock, or $2.7 billion, for IBP.

It remains unclear whether Smithfield, based in Smithfield, Va., will sweeten its bid, which IBP’s special committee had publicly encouraged before the Tyson offer. After news of Tyson’s unsolicited bid Monday, Smithfield released a statement highlighting the strengths of its offer.

Tyson’s offer also beat an earlier offer led by a unit of investment bank Donaldson Lufkin & Jenrette that promised IBP $22.25 a share in cash.

IBP, based in Dakota Dunes, S.D., had accepted the $2.4-billion buyout bid from the DLJ affiliate before Smithfield came in with a higher offer.

A spokesman for the DLJ unit had no comment.

IBP shares rose 38 cents to close at $25.44, and Smithfield closed up 8 cents at $29.03, both on the NYSE.