Updated from 10:03 a.m. EST
, the world's largest pork producer, announced a bid Monday to acquire all outstanding shares of
in a $4.1 billion all-stock deal that includes the assumption of $1.4 billion of IBP debt.
Under the offer -- the second IBP has received in the past six weeks -- shareholders of Dakota Dunes, S.D.-based IBP would get $25 worth of Smithfield Foods stock per share of IBP, a nearly 20% premium based on Friday's closing price of $20.88. Smithfield Foods already has more than a 6% stake in IBP, the world's largest beef producer and one of the nation's top pork processors.
After hitting a 52-week high of $31.75 on Friday, shares of Smithfield finished Monday regular trading down $3.63, or 11%, at $28. Shares of IBP ended up $1.38, or 7%, at $22.25.
Smithfield Foods' proposed stock offer tops the $2.4 billion cash
offer made in late September by
, a subsidiary of
Donaldson Lufkin & Jenrette
, and a group of investors including some members of IBP's senior management,
Archer Daniels Midland
Booth Creek Partners
. Under that deal, which was approved by IBP in late September, the group would assume approximately $1.4 billion in IBP debt and pay IBP shareholders $22.25 per share, about 12.4% less than the Smithfield Foods offer.
The Smithfield Foods offer raises antitrust concerns as Smithfield and IBP would control an estimated 37% of the pork processing and producing sector. In a conference call Monday, Smithfield Foods CFO Larry Pope said the company had informed regulators of their offer and did not see any "meaningful impediments" to the transaction, which could be completed within four months assuming it is accepted by shareholders of each company, and approved by regulators.
Early Monday afternoon, IBP had not yet responded to the offer.
Should the deal be accepted, Smithfield Foods Chairman and Chief Executive Joseph Luter III said the company is likely to divest certain assets -- probably one or more of its pork processing plants -- in order to assure that the transaction would receive regulatory approval. He said the combined company's share in the pork processing sector could be about 30% following the sale of certain assets.
The Smithfield, Va.-based meat processor estimates that the combined company would achieve savings of about $200 million after the two have been fully integrated, including profits from the sale of any assets, and expects the proposed acquisition to be accretive to earnings within the first year.
John McMillin, an analyst with
said those cost savings could boost earnings estimates for the combined company to nearly $3.80 per share in fiscal year 2002, based on approximately 40 cents accretion -- an estimate Luter said was attainable. That would be significantly higher than the fiscal year 2002 consensus estimate of $3.20-per-share earnings for Smithfield Foods, according to analysts surveyed by
First Call/Thomson Financial
Luter acknowledged that job cuts were possible as a result of the acquisition but said he did not anticipate a "significant" reduction in the workforce, particularly as the company would likely sell, not shut down, any plants as a result of the deal.
Smithfield Foods made its offer in a letter sent to the chairperson of the special committee of IBP's board of directors that had approved the proposed leveraged buyout by Donaldson Lufkin & Jenrette affiliates.
In his letter to the chairwoman, Luter urged the company to reconsider its decision, adding, "We view a combination with IBP as an opportunity to create significant value for both of our stockholder bases by continuing to expand the movement into case-ready products, by creating a national brand and by building a strong stable of value-added meat products."
Luter added that many IBP shareholders "have called into question the fairness of the buyout group's proposal," and added that the group's highly leveraged transaction proposal would burden IBP with added debt. Unlike that proposed buyout transaction, Smithfield's offer is not subject to a financing condition.
"We urge you to recognize the immediate and long-term superior value of this transaction to all your stockholders," Luter concluded.
Under the terms of the Smithfield Foods proposal, the amount of Smithfield Foods stock to be exchanged for IBP shares would remain within a 10% band in both directions of the 0.791 exchange rate, based on Friday's closing price of $31.63. That means each share of IBP would be worth between 71.9% and 87.8% of a Smithfield Foods share, assuming Smithfield's average stock price remains between $28.46 and $34.79 in a specified period prior to the closing of the deal.
Smithfield Foods doubled its hog production earlier this year with the purchase of
Murphy Family Farms
, the country's second-largest hog producer, making it the world's largest hog producer and fresh pork processor.