Tyson to Acquire No. 1 Beef Supplier IBP for $3.2 Billion

Offering up a New Year’s Day repast of chicken and steak, poultry king Tyson Foods Inc. has agreed to buy No. 1 U.S. beef processor IBP Inc. for $3.2 billion in cash and stock, the companies announced Monday.

The deal, under which Tyson would also assume $1.5 billion in debt, was reached during the weekend and approved by a special committee of IBP directors who were examining bids for the company.

Tyson, the biggest U.S. poultry producer, offered to pay $30 for each IBP share, about half in cash and half in stock. That’s 12% more than IBP’s closing share price Friday of $26.75 on the New York Stock Exchange. Tyson shares closed at $12.75, also on the NYSE.

Tyson beat out Smithfield Foods Inc. in the battle for IBP, though Smithfield said later Monday that it had offered $32 a share in stock. The Smithfield, Va.-based firm, itself the No. 1 U.S. processor of pork, said the offer expired Monday without a response from IBP.

“The acquisition will make Tyson the biggest meat producer in the U.S. by far,” said Christine McCracken, an analyst at Midwest Research. “There will also be fewer regulatory concerns with this combination than if Smithfield had bought IBP.”

John Tyson, who became chairman of his family’s Springdale, Ark.-based company last year, is seeking to turn IBP’s meat business into a national brand the way Tyson did with chicken. IBP is the nation’s No. 2 pork processor, Tyson said.

Tyson and IBP of Dakota Dunes, S.D., would combine to create a company with more than $23 billion in annual revenue. Tyson said the purchase would add to earnings by more than 15%.

The transaction, subject to shareholder and regulatory approval, is expected to be final sometime during the first quarter of the year, Tyson spokesman John Lea said.

Farmers, agriculture officials and consumer activists have expressed concern that a purchase of IBP by either of its suitors would be anti-competitive.

Tyson confirmed Thursday that the U.S. Justice Department was seeking additional information about its proposed offer, signaling antitrust concerns by regulators.

“What people are afraid of is that there’s going to be a disruption or that corporate farms are going to drive independent farmers out of business,” Lea said. “We have no intention of setting up corporate farms or vertically integrating beef and pork operations at IBP.”

Said analyst McCracken: “The regulators will look at this deal, but Tyson has very little overlap with IBP. They have very distinct businesses for the combination to be a big issue. The Tyson-IBP combination is better in business and for management than a Smithfield-IBP union would have been.”

Smithfield would probably have faced a more rigorous review because combined with IBP it would have controlled about 38% of U.S. pork output, McCracken said.

“A Tyson-IBP combination will only control about 25% of U.S. pork output,” she said.

The battle for IBP began in October after a group including management offered to buy the company for about $3.8 billion in cash and debt. Smithfield entered the bidding Nov. 13 and Tyson on Dec. 4.