In re IBP, Inc. Shareholders Litigation

Tyson Foods, Inc. (Tyson) (plaintiff), the nation’s largest chicken distributor, eagerly sought to acquire IBP, Inc. (IBP) (defendant), a leading national beef and pork distributor. In the proposed merger, IBP shareholders would receive their choice of $30 per share in cash, Tyson stock, or a combination of the two. During the negotiation process, 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 earnings would likely be lower than projected. Consequently, Tyson doubted (1) IBP’s ability to project future earnings and (2) the credibility of IBP’s senior management. Nevertheless, Tyson ardently pursued the merger. Tyson and IBP executed a merger agreement, and the agreement was ratified by Tyson’s stockholders. Shortly thereafter, both IBP and Tyson suffered adverse financial effects stemming from an unusually harsh winter. Tyson had buyer’s remorse and began to slow down the merger process. Eventually, Tyson sent a letter to IBP terminating the merger agreement. Tyson claimed it was entitled to terminate because, among other things, IBP’s declined performance caused IBP to breach a warranty representing that IBP had not suffered any materially adverse effects since a certain date. Contemporaneously with the termination, Tyson filed suit against IBP, accusing IBP of fraudulently inducing the merger. IBP countered that Tyson had no legal basis to terminate the agreement and requested specific performance requiring the merger’s consummation.