Virginia-based Smithfield Foods Inc. - owner of one of Canada's largest pork processors - said Monday it has put in a $2.7-billion (U.S.) all-stock bid for U.S. food giant IBP Inc.
Under the deal, IBP shareholders would get $25 (U.S.) worth of Smithfield stock for each IBP share. The unsolicited offer is a bid to break up IBP's earlier deal to sell the company to a management-led buyout group.
IBP is the largest U.S. supplier of fresh beef and pork. Smithfield is a leading pork producer. A union between the two would let Smithfield compete effectively with diversified meat producers.
Smithfield already owns one of Canada's largest pork processing operations, following its 1998 purchase of Schneider Corp., based in Kitchener, Ont.
The U.S. company bought Schneider after beating out Maple Leaf Foods Inc., which had made a hostile bid for the firm. Maple Leaf and some of Schneider's minority shareholders had unsuccessfully gone to court to try to block Smithfield's takeover.
On Monday, Smithfield said its bid for IBP is financially superior to the proposed management buyout, which it called a "1980s-style leveraged buyout" that would leave IBP saddled with hundreds of millions of dollars in junk bonds and $2.9-billion in debt.
"We believe the transaction we are proposing is a great opportunity for the shareholders of both Smithfield Foods and IBP," Joseph Luter, Smithfield's chairman and chief executive, said in a statement.
"We believe it's the right strategic course to take in order to be responsive to the demands of the consolidating food retail and food service industries."
Smithfield said the total value of its offer is $4.1-billion (U.S.), including the assumption of $1.4-billion (U.S.) in IBP debt. Smithfield already owns 6.6 per cent of IBP shares.
IBP's board had accepted a lower management buyout offer six weeks ago from a group that included members of IBP's senior management and an investment fund controlled by Wall Street investment firm Donaldson, Lufkin and Jenrette. That offer - criticized by some IBP shareholders as too low - was for $22.25 (U.S.) cash for each IBP share.
Based in Dakota Dunes, South Dakota, IBP is also a diversified producer of hundreds of prepared products, including deli meats, pizza toppings, soups and sauces. IBP's operations include Alberta-based meat packing operation, Lakeside Packers.