A US court has rejected Tyson Foods’ petition to stay or dismiss IBP’s lawsuit. March saw Tyson initiate its withdrawal from merging with IBP. Both companies have since filed lawsuits against the other. The rejection means that IBP still has a chance to enforce the original deal. But if the suit fails, IBP’s value to potential new bidders will be considerably diminished and offer little reassurance to shareholders.
Since March 29, when Tyson withdrew from a $4.7 billion merger agreement with IBP, both companies have filed lawsuits against the other. Tyson filed suit that day to end the deal, alleging fraud and breach of contract by IBP.
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The problems arose from a Securities and Exchange Commision investigation into its DCG subsidiary. Tyson claims that it was not informed of the investigation until more than a week after the deal was struck. It is asking for costs and damages as well as the return of a $66.5 million loan. IBP filed its own suit the next day in Delaware, in an attempt to force Tyson to continue with the agreement. It claims to have been candid with Tyson and described the excuse for terminating the deal as “completely unjustified.” Tyson, one of the world’s major chicken producers, wanted all court hearings to be held in its home state of Arkansas, despite a confidentiality agreement signed by both parties in December that required any disputes arising from merger negotiations to be held in Delaware. On Wednesday, the judge ruled that the brief period of time between the two lawsuits being filed negated any preference towards the earlier suit. Both hearings are scheduled to begin on 14 May.
Win or lose, IBP is likely to suffer considerably from this experience. Potential buyers will be less keen now that the company’s problems have been highlighted in such a way, and any ensuing offer could be as much as a third less than the $30 per share Tyson was willing to pay and IBP promised to its shareholders. Tyson on the other hand, assuming the deal is not enforced, will be able to continue its search for potential acquisitions, but will be considerably more cautious before signing any agreements in the future.
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