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In re IBP, Inc. Shareholders Litigation

Chancery Court of Delaware
789 A.2d 14 (2001)


Facts

Tyson Foods, Inc. (Tyson) (plaintiff), the nation’s largest chicken distributor, eagerly sought to enter into a merger agreement with IBP, Inc. (IBP) (defendant), the nation’s leading beef and pork distributor. As a result of the merger, IBP shareholders would be able to receive their choice of $30 per share in cash or Tyson stock, or a combination of the two. Tyson’s own investment banker approved the merger as being fairly priced at $30 per share. During negotiations, Tyson learned that one of IBP’s subsidiaries had encountered serious financial problems due to a $30 million accounting-fraud scheme. Additionally, Tyson was aware that IBP’s business was in a slump and that IBP’s financial earnings would be lower than expected. Consequently, Tyson doubted (1) IBP’s ability to project future earnings and (2) the credibility of IBP’s senior management. Nevertheless, Tyson proceeded with the merger and raised its bid by $4 per share despite IBP’s issues. After the agreement was signed, the merger was announced to Tyson shareholders and the financial community. Subsequently, IBP and Tyson were adversely affected financially after enduring an unusually harsh winter. Tyson began to lose interest in the merger with IBP and began to slow down the process. Eventually, Tyson sent a letter to IBP terminating the agreement. At the same time, Tyson filed suit against IBP, accusing IBP of fraudulently inducing the merger. IBP argued that Tyson had no legal basis to avoid the agreement, and requested specific performance.

Rule of Law

Issue

Holding and Reasoning (Strine, J.)

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