A special committee of independent board members has submitted its response to an offer from Smithfield Foods to merge with IBP. Committee Chair Joann R. Smith, an IBP board member since 1993, sent a letter late Monday to Smithfield Chairman Joseph W. Luter III. The letter, in its entirety, is included in this announcement.
IBP officials indicate it is inappropriate for them to comment about the contents of this letter or other issues related to this competing offer.
Letter to Smithfield Foods
November 13, 2000
Mr. Joseph W. Luter III Chairman Smithfield Foods, Inc. 200 Commerce Street Smithfield, Virginia 23430
Dear Mr. Luter:
The Special Committee of the Board of Directors of IBP, inc., was pleased to receive your letter dated November 12, 2000 in which you propose a merger in which IBP shareholders would receive $25 per share, payable in Smithfield common stock, subject to the terms and conditions set forth therein. Please be assured that the Special Committee is fully committed to the objective of maximizing value for the IBP shareholders.
As you have acknowledged in your letter and public comments, there are a number of issues that need to be addressed in connection with your proposal. Nevertheless, the Special Committee has determined that your proposal meets the applicable threshold under IBP’s merger agreement with Rawhide Holdings Corporation and is therefore prepared to enter into discussions with you regarding your proposal.
You indicated in your letter that you are interested in performing a brief confirmatory due diligence review. We are of course happy to accommodate you on that score. Enclosed for your review is a form of confidentiality agreement. In addition to commitments not to hire IBP employees and to keep confidential any nonpublic information, it further requires Smithfield to not make any offer for IBP which does not involve the acquisition of all of its shares, and not to acquire any additional shares of IBP other than pursuant to such an offer. I am sure you can appreciate the necessity for these requirements and assume they cause no difficulty.
Among the subjects we hope you will be in a position to address are the details of the plan referred to in your letter to address antitrust issues. We are pleased by your willingness to take the steps necessary to resolve any issues that may be raised by regulators, and want to avail ourselves of your invitation to have our advisors meet with you. These assurances are, of course, of critical importance to us
It is also encouraging to us that you acknowledge the political sensitivities of your proposal which introduce elements of uncertainty as to timing and ultimate consummation. The initial reaction to your proposal by some state and federal officials certainly indicates there is a basis for those concerns. Thus, your willingness to commit to resolve regulatory issues, as you have indicated, is made even more important.
Another important issue we have focused on is the so-called “collar” on the exchange ratio. The closing price of Smithfield stock on the last trading day prior to your announcement of your merger proposal was its highest closing price in the past year; subsequent to the announcement, your stock traded below the lower end of your proposed collar. In light of these facts, as well as the general volatility of share prices in the current environment, we will be very interested in discussing with you ways to protect the value for IBP shareholders. This, in addition to other things, should include starting from a base price higher than $25 per share. In that regard, we were also encouraged by other indications in your letter that you are prepared to consider a higher price.
Again, we are appreciative of your interest and look forward to working with you on a cooperative basis to determine whether a satisfactory transaction can be developed.
Very truly yours,
JoAnn R. Smith