The proposed purchase of IBP by Tyson Foods may be in doubt after Tyson said yesterday that it was terminating its cash tender offer and beginning to work instead on a cash election merger. The move is likely to delay the merger process.

The US$3.2bn merger has been continually held up after the US Securities and Exchange Commission  (SEC) raised questions over some of IBP’s accounting practices.
SEC is investigating IBP over financial statements relating to DFG, a company acquired by IBP, which makes meat products for the food service industry. IBP said in a statement that it was ‘working diligently’ with the SEC, and making ‘significant progress’ on the accounting issues.

The cash election process will mean that Tyson will now need to file a new prospectus with the SEC – which would include the restated IBP results – as well as a proxy statement. Tyson said that shares already tendered under the original cash tender offer would be returned.

A special shareholder meeting and vote of both IBP and Tyson shareholders will then take place on the deal. The whole process will delay any deal further but both companies still expect the merger to go ahead.

The terms of Tyson’s original purchase of IBP will remain the same. Tyson agreed to pay 50.1% of the IBP acquisition price in cash with the remaining consideration in Tyson shares.

Analysts believe that Tyson may now negotiate a lower price for IBP, depending on results of the Securities and Exchange Commission accounting probe.