June 27 was the deadline for IBP and Tyson to reach a solution to reinstate their merger deal which collapsed when Tyson tried to pull out, accusing IBP of presenting misleading information about their worth.
Tyson, the largest US chicken producers, followed the judge’s order forcing them to buy red meat packers IBP, and adhering to the original terms. They will buy IBP for around $2.7 billion in cash and stock, honouring the merger terms negotiated at the turn of the year.
The purchase price is lower than the original $3.2 billion deal, reflecting the significant drop in Tyson’s shares since the deal was first struck. A ruling on June 15 by Delaware’s chancery court found that Tyson had acted improperly when they ended an agreed merger contract with IBP after IBP were forced to restate earnings.
The court rejected Tyson’s claim that they had pulled out because IBP had misled them over an accounting irregularity. It was felt that Tyson had reneged because they feared they had offered to pay too much and their own business was suffering.
The key issue was that Tyson only found out about a pending Securities and Exchange Commission probe into an IBP unit after striking the agreement. The judge ruled that Tyson knew enough and that they got cold feet.
Immediately after IBP’s successful suit to enforce the deal, their shares rose $6.08 to $24.35 while Tyson’s dropped by more that 17% to $9.37.
Tyson faced ‘huge’ damages if the deal did not proceed, but decided not to appeal against the decision. The merger will create an agribusiness with sales of more than $23 billion and more than 10,000 staff.
Under the original contract Tyson were to pay $30 a share for IBP. Under the terms of the merger they will still pay $30 per share in cash for 50.1% of IBP’s shares (approximately 106 million) and 2.381 of their own shares for the remaining 49.9% of IBP’s shares. The deal also includes the assumption of about $1.5 billion in debt.
The court has set a deadline of November 15 for the merger to be completed.
