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IBP agrees to Tyson talks
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December 6, 2000: 3:13 p.m. ET
Meatpacking company agrees to discuss $2.8 billion cash and stock bid
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NEW YORK (CNNfn) - A special committee handling merger negotiations for meatpacking company IBP Inc. agreed Wednesday to open confidential discussions with Tyson Foods, the No. 1 U.S. chicken producer, which submitted a $2.8 billion acquisition bid earlier this week.
In a letter sent to John Tyson, the chairman and chief executive officer of Tyson Foods, the committee said it was "pleased" to receive the bid offering to pay IBP shareholders the equivalent of $26 per share equally split in cash and Tyson stock, and was prepared to enter a confidentiality agreement and with the Springdale, Ark.-based company.
However, the committee indicated it was concerned about the stock swap "collar" included as part of Tyson's proposal.
The collar is designed to protect IBP (IBP: Research, Estimates) shareholders from fluctuations in Tyson's share price and maintain the proposal's intrinsic valuation of IBP at $26 per share. However, the collar limits the number shares Tyson would exchange for each IBP share to a maximum of 2.063 shares, meaning that IBP's valuation would fall below the $26 per share level if Tyson trades below $12.60.
As the committee noted in its letter, Tyson (TSN: Research, Estimates) shares are already struggling to stay above that range, having closed Tuesday at $12.13. At that level, IBP shareholders would receive shares valuing the company only at $25.02 per share.
 In mid-afternoon trading Wednesday, Tyson's stock slid an additional 50 cents to $11.63.
"We are very interested in discussing with you ways to protect the value for IBP shareholders, such as a broader collar or a higher starting price," the committee said in the letter.
IBP, the No. 1 U.S. beef processing company, has also entered a confidentially agreement with Smithfield Foods Inc. (SFD: Research, Estimates), the No. 1 U.S. pork producer.
The Smithfield, Va.-based company submitted a $2.6 billion all-stock acquisition offer for IBP three weeks ago, trumping a $2.2 billion management-led buyout bid. In a statement released Monday following Tyson's offer, Smithfield maintained that its offer remained the most attractive since it would achieve greater synergies with IBP.
IBP shares climbed $38 cents to $25.44 in mid-afternoon trading Wednesday while Smithfield gained 5 cents to $29. 
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