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A Delaware judge ruled Friday that Tyson Foods Inc. must complete its $4.7 billion acquisition of IBP Inc., rejecting arguments from the U.S. poultry giant that it had a right to terminate the deal because of accounting problems at IBP. “Specific performance is the decisively preferable remedy for Tyson’s breach, as it is the only method by which to adequately redress the harm threatened to IBP and its stockholders,” Vice Chancellor Leo E. Strine ruled in a 146-page opinion. The ruling is a major victory for Dakota Dunes, S.D.-based IBP. Most legal analysts following the case had expected Springdale, Ark.-based Tyson to prevail. The judge ordered the parties to present a joint order implementing his decision by June 27. He also said he would hold a conference on the order that week. Tyson is expected to appeal. One risk arbitrageur following the case said he expects Tyson to make a settlement offer, possibly for $27 to $29 per share. Strine said IBP did not illegally induce Tyson into the merger by hiding problems at its DFG subsidiary. He also said Tyson agreed to assume the risks of potential restatements resulting from the DFG problems when it signed the merger agreement. He rejected Tyson’s claim that an exemption from DFG problems in the agreement did not apply to documents filed with the Securities and Exchange Commission. “The merger agreement specifically allocated certain risks to Tyson, including the risk of any losses or financial effects from the accounting improprieties at DFG, and these risks cannot serve as a basis for Tyson to terminate the agreement,” the judge wrote. Strine also ruled that a drop in IBP’s profitability was not sufficient to trigger a so-called material adverse change clause in the agreement. This clause would allow a party to terminate the merger if business conditions changed dramatically. Tyson agreed Jan. 1 to acquire IBP for $4.7 billion, including assumption of $1.5 billion of debt. But it terminated the deal March 29, charging that IBP breached the merger agreement when it restated past earnings to reflect charges for its DFG subsidiary, which makes appetizers. Tyson also charged that IBP profit picture had deteriorated significantly, which would give the poultry giant the right to kill the deal for a “material adverse change.” Both sides squared off before Strine during nine days of trial in Wilmington, Del. Witnesses included Tyson chairman John Tyson and IBP chairman Robert Peterson. Copyright (c)2001 TDD, LLC. All rights reserved.

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