In re IBP, Inc. Shareholders Litigation

Facts

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