IBP, inc. (NYSE: IBP) has filed a lawsuit in a Delaware Chancery court to force Tyson Foods (NYSE: TSN) to honor its agreement to complete a $3.2 billion merger acquisition of IBP.
“Tyson’s actions are completely unjustified by anything that has transpired and we will do what is necessary to protect our shareholders and our company” Robert L. Peterson, IBP chairman and chief executive officer, said. “We can only speculate that this is a classic case of ‘buyer’s remorse,’ because there is clearly no basis for Tyson’s claim that it was fraudulently induced and does not have to proceed with this transaction.
“We also want to emphasize to shareholders and others following this surprising turn of events, that IBP remains a very strong and vibrant part of the food industry, with a strategic plan for continued growth and the resources and employees to carry it out successfully,” Peterson added.
IBP’s lawsuit notes that Tyson officials were provided routine and accurate updates of the status of management’s assessment of potential charges at its DFG Foods subsidiary before and after the merger agreement was signed. Dfg, a small Chicago-based company, makes specialty high-end, prepared hors d’oeuvres, kosher foods and food for airlines.
According to the suit, Tyson was told in the days before the merger agreement was signed that an additional pre-tax write-down of at least $30-35 million would be required, and that the actual write-down could be even greater. IBP ultimately took a $44.9 million pre-tax charge, $15.5 million of which was taken in 1999 and the balance in 2000.
In addition, the IBP suit states the merger agreement specifically disclosed the possibility of additional undisclosed liabilities associated with the DFG situation, without limit as to amount.
IBP also recorded a non-recurring pre-tax impairment charge to goodwill and other long-lived assets at DFG of $41.3 million on an after-tax basis. As previously reported, this charge does not affect operating cash flows and represents only 2.2% of IBP’s stockholders’ equity of $1.8 billion.
The entire DFG business is not material to IBP, accounting for less than one half of one percent of the company’s total sales in 2000. Last fall, IBP anticipated DFG would contribute about $8.8 million, or 2.2% of projected 2001 operating earnings of $446 million; it now believes DFG will be cash flow neutral.
Tyson’s decision to cite a December 29, 2000, letter from the Securities and Exchange Commission (SEC) as a reason for its withdrawal from the IBP merger is simply a “smokescreen,” according to IBP officials. As previously reported, the revisions made in response to the SEC comments did not represent a material change to IBP’s financial condition. The SEC comment letter also resulted in expanding the number of business segments for which IBP reported financial data from two to five and in certain footnote disclosures, changes that had no impact whatsoever on the company’s consolidated results.
IBP’s legal action also points out the numerous occasions Tyson expressed its commitment to the transaction after it received a copy of the SEC comment letter.
IBP filed the suit in Delaware because there are already shareholder claims pending in Delaware Chancery court pertaining to the IBP/Tyson merger.