By Lyle Niedens
NAPLES , FL(B)--Pork processing powerhouse Smithfield Foods again would pursue buying rival meatpacking giant IBP if the latter's current acquisition agreement with Tyson Foods falls apart, Joe Luter, Smithfield's chief executive, said Feb. 20.
In an interview with BridgeNews, Luter said an inquiry by the Securities and Exchange Commission into IBP's financial statements would not preclude Virginia-based Smithfield from pursuing its biggest pork-processing rival once again.
"I do not know enough about the SEC inquiry to make a judgment on it," Luter said after speaking at the Consumer Analysts' Group of New York meeting here. "But if Tyson lowered the offer price, would we be a player again? The answer is, probably yes."
Smithfield lost a bidding war for IBP, also the biggest U.S. beefpacker, to chicken marketing conglomerate Tyson in early January. But the SEC's inquiry has thrown a wrench into Tyson's planned $4.7 billion purchase of South Dakota-based IBP.
Both Tyson and IBP repeatedly have said they would like to consummate the deal as soon as possible, and U.S. antitrust regulators already have approved the transaction. However, Tyson, based in Springdale, AR, twice has extended the expiration date to buy 50.1% of IBP's outstanding shares. The latest bid for those shares expires Feb. 20. Tyson would pay for the remaining 49.9% of IBP with stock.
"We are committed to finalizing this transaction," John Tyson, Tyson's chief executive, said in a news release Feb. 6, the date of Tyson's second extension. "However, we feel compelled to delay the close of the cash tender and the filing of the exchange offer documents until IBP's issues with the Securities and Exchange Commission are resolved.
"Until then, we will continue monitoring this situation to determine what impact, if any, the resolution of these questions will have on the financial statements and business."
The SEC in late January issued an inquiry with 45 comments on IBP's annual 10-K, quarterly 10-Q and other filings made Dec. 29.
Among other items, questions involved IBP's first merger agreement with Rawhide Investment Holdings, a division of investment bank Donaldson, Lufkin & Jenrette, now a part of Credit Suisse Group. IBP broke that agreement, valued at $22.25 per share, in favor of Tyson's bid valued at $30 per share.
The SEC also questioned IBP's financial reporting of its acquisition of Houston-based Corporate Brands Foods last year. IBP folded Corporate Brands into its Foodbrands America foodservice division, aimed at reducing its earnings reliance on meatpacking.
IBP also has said it would discuss with SEC how to account for a $47 million, one-time charge related to its Chicago-based DFG Foods division, which makes premium hors d'oeuvres and appetizers.
Luter reiterated Feb. 20 he thinks Smithfield's final, all-stock bid for IBP--valued at $32 per share and made in late December--remains superior to the Tyson bid that IBP's special acquisition committee chose.
But Luter refused to detail how Smithfield would structure a new bid if IBP and Tyson cannot close their deal.
Luter's comments occurred after he made a presentation on Smithfield to dozens of industry analysts and investment professionals gathered for a weeklong meeting. Tyson will make a similar presentation Feb. 21.
If IBP and Tyson eventually overcome problems with their deal, Luter said Smithfield sees other acquisition opportunities in the United States and Europe. But he is not desperate to make a deal.
"We are not going to grow for growth's sake," he said. "We are in business for shareholder returns, not for sales growth."
The company has focused on buying hog production outfits in recent years to further its vertical integration strategy of raising and owning more of the hogs it eventually slaughters for ham, bacon, hot dogs and other pork products.
Smithfield now is about 60% vertically integrated. Luter said he is comfortable with that number but would not mind pushing it higher. He plans to do so only through acquisitions, though, not by building new hog farms.
"We have too many hogs in the United States already," he said.
Regarding other matters, Luter said Europe's recent mad-cow hysteria has boosted pork demand on the east side of the Atlantic, which accounts for just a small portion of Smithfield's overall business.
Luter, though, said it is unclear whether the increased demand is a "temporary blip" or if it is a more long-term development.