Tyson
has reentered merger negotiations with IBP after a US court ruling. The US’s
largest chicken producer is being forced to go ahead with its purchase of IBP.
The court rejected Tyson’s claims that it was mislead about potential accounting
problems. While there are likely some benefits to Tyson in diversifying outside
of the chicken industry, it may still not be the right company to turn IBP around.
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Last Friday, Delaware-based Judge Leo Strine informed Tyson foods that it
would have to proceed with the IBP merger or face “staggeringly large” damages.
Tyson decided over the weekend not to appeal the decision and announced early
this week that the merger negotiations were back on. Tyson agreed to buy the
beef and pork producer in January this year but later backed out, claiming that
IBP had misrepresented its value. Tyson stated that it had been unaware of an
SEC investigation into accounting irregularities at IBP’s DCG unit. The court
rejected Tyson’s claims, finding that the company had backed out due to nervousness
over the deal, and would have to go through with the agreement.
The original agreement involved Tyson purchasing IBP for $3.2 billion in cash
and stock and assuming around $1.5 billion of debt. Since then, Tyson’s shares
have fallen by around $4 each, bringing the price down to $2.76 billion.
The decision is an unusual one in merger litigation, and one that may impact
future decisions. Companies have to be aware that a court may force them to
go through with their deals, whether they like it or not.
There have always been mixed reactions to the merger. A deal would produce
an enormous and influential organization, with over 100,000 employees and sales
in excess of $23 billion. Tyson may benefit from diversifying into other areas,
now that its growth in the chicken market has slowed.
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However, Tyson has not been particularly successful in the beef and hog industries
and may have some difficulty in turning around IBP’s flagging empire. There
may also be additional difficulties with bad feelings between the two companies.
Even if Tyson is capable of a successful IBP revamp, it will still be a long
time before we see much progress.
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