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Probe prompts Tyson to drop bid to buy beef and pork producer

NEW YORK — Tyson Foods Inc., the world's largest poultry producer, called off a $3.2 billion purchase of IBP Inc. that would have also made it the nation's top beef and pork producer.

Thursday's decision came nine days after IBP said an investigation into its appetizer unit, DFG Foods, uncovered potential manipulation of financial records, product theft and mismanagement by former unit managers.

"While we continue to believe that the combination of IBP and Tyson would have created the premier protein company in the world, we simply cannot endorse a decision to complete the transaction under the facts as we understand them today," said John Tyson, chairman and chief executive of Tyson, based in Springdale, Ark.

In a statement faxed to The Associated Press, IBP said it was "shocked by Tyson's announcement.

"This comes as a complete surprise. As recently as this week, our sense was that Tyson had every intention of going through with the transaction."

IBP spokesman Gary Mickelson said the company had no other comments regarding the deal, but the press release said the company didn't believe Tyson had "any valid basis" to terminate the merger agreement.

The decision by Tyson was not surprising, said George Dahlman, food analyst with U.S. Bancorp Piper Jaffray.

"They were taking on more than they could really handle here," he said.

Officials with IBP, based in Dakota Dunes, S.D., said on March 20 they expected the purchase to go through because the company had resolved accounting issues delaying the deal. They also said they could not release more details of the investigation because of possible legal action.

IBP amended financial reports for the Securities and Exchange Commission after the problems were uncovered, but Tyson officials said Thursday that the terms of the deal had been based on incorrect filings submitted earlier to the SEC.

"Unfortunately, we relied on that misleading information in determining whether to enter into the merger agreement," Tyson general counsel Les Baledge wrote in a letter faxed to top IBP officials.

After the problems at IBP were made public, analysts doubted the poultry giant would be willing to pay the agreed-upon $30 per IBP share price in cash and stock.