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Smithfield Foods Inc.’s unsolicited $4.1 billion bid for meat-packer IBP Inc. is eliciting howls of protest from farm and antitrust advocates and could revive efforts to clamp down on agribusiness mergers. “On the face, this seems difficult to achieve both legally and politically,” said Albert Foer, president of the American Antitrust Institute, a non-profit group that advocates enforcement of competition laws. Sen. Tom Harkin, D-Iowa, sent a letter Monday to Attorney General Janet Reno and Agriculture Secretary Dan Glickman, saying, “Sirens should be sounding” about the anticompetitive effects of this deal. “Large agribusinesses through mergers, acquisitions and strategic alliances are already controlling more and more of the production and processing of our agriculture commodities,” Harkin wrote. “This giant leap toward further consolidation can only be further bad news for the survival of independent pork and beef producers.” Smithfield offered Monday to buy IBP for $2.7 billion in stock and $1.4 billion in assumed debt. The bid price of $25 per share was a 20 percent premium over IBP’s closing price Friday and 12 percent more than management’s pending cash offer in a proposed leveraged buyout. Under terms of the LBO, Smithfield retains the right to consider superior offers. IBP, based in Dakota Dunes, S.D., issued a statement saying a special committee of independent board members will evaluate Smithfield’s offer. “Until this examination is completed and the committee has made its recommendation, it is inappropriate for us to speculate on the outcome or make any additional comment,” the company said. The Smithfield, Va., hog processor said in a statement that it is confident there are not any “meaningful impediments to its offer from an antitrust or regulatory” standpoint. Smithfield said it was prepared to divest some assets to secure approval, including a pork-processing plant in the Midwest. It also pledged not to vertically integrate IBP’s cattle-growing business, to stay out of the feedlot business, and to continue buying some hogs from outside suppliers. Yet the concessions did little to mollify a bipartisan coalition of opponents, who charge the hog-processing sector is already too concentrated. “I’ll be working to ensure vigorous scrutiny of the proposed deal by the regulatory bodies,” said Sen. Charles Grassley, R-Iowa. “The government has a responsibility to understand the ramifications of this proposed acquisition and any further concentration in agriculture to ensure competition for the independent producers who get caught in the middle.” Sen. Paul Wellstone, D-Minn., charged the deal would preclude any effective competition in the pork-packing sector. “Wall Street may be cheering today, but hard-pressed family farmers and ranchers are not cheering one bit,” said Wellstone, who has championed several bills that would bar large agribusiness combinations. “How much more concentrated do these agriculture markets have to become before we demand strong antitrust action?” A February 1999 study by the National Farmers Union found that Smithfield and IBP were the two leading hog processors. Together they would control about 36 percent of the market and be more than 3.5 times larger than their nearest rival. “This is just going to reduce competition for farmers and ranchers,” said Tom Buis, vice president of government relations at the National Farmers Union. “We find it very troubling and we are going to write to the Department of Justice.” Buis said the deal will bolster efforts in Congress to crack down on agribusiness mergers. “There is a growing concern in Congress that maybe the antitrust laws are not sufficient,” he said. “This will renew interest on the Hill.” One bill sponsored by Grassley would give the U.S. Department of Agriculture power to block mergers if the Justice Department does not stop the transaction on antitrust grounds. Another measure sponsored by Senate Minority Leader Tom Daschle, D-S.D., and other leading Democrats would let the USDA impose heavy fines on companies that complete anticompetitive deals. The intent of the bill is to use the threat of daily fines to deter companies from completing agribusiness mergers. But whether the hog industry is overly concentrated is still under debate. Philip Paarlberg, a professor at Purdue University, said the deal would likely mean that the top four hog processors would control about 65 percent of the market. That indicates that the market is moderately to highly concentrated, he said. Yet the number is still well below the ratio for beef packers, where the four-firm concentration level approaches 80 percent. “Compared to where the hog industry was 15 years ago, it would be very high,” Paarlberg said. “But it still would not be as high as in beef.” Smithfield Chairman Joseph W. Luter III made the offer in a letter sent Sunday to JoAnn R. Smith, chairwoman of a special committee of IBP’s board that is reviewing the Oct. 2 offer by senior management and Donaldson, Lufkin & Jenrette Inc. to take the firm private in a leveraged buyout. The LBO would pay shareholders $22.25 per share in cash, which is 11 percent less than Smithfield’s stock offer. “We can offer a superior transaction and … there is a compelling logic to a combination of our two companies in a manner that provides greater short- and long-term value,” Luter wrote. To guard against fluctuating stock prices, the deal contains collars. The minimum value of the deal is .878 Smithfield shares for each IBP share, and the maximum value is .719 Smithfield shares for each IBP share. The deal would be tax-free to shareholders and accounted for as a pooling of interests. “The combined company would have … far greater financial resources and staying power than a highly leveraged company controlled by financial investors with little long-term commitment to our industry or our way of life,” Luter said in a statement issued Monday. Smithfield has retained Goldman, Sachs & Co. for financial advice, while the law firms Simpson Thacher & Bartlett; McGuireWoods; and Hunton & Williams provided legal advice. Related Chart: Smithfield Foods/IBP Deal Stats Copyright (c)2000 TDD, LLC. All rights reserved.

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