DES MOINES, Iowa (AP) – A group of investors this week gained class-action status for a suit against Tyson Foods Inc. alleging securities fraud in its acquisition of beef-packing giant IBP Inc. twoyears ago.
The lawsuit was brought by several hedge funds, which together lost about $20 million on the deal.
Their suit seeks to represent all those who bought IBP shares on or before March 29, 2001, and subsequently sold them, incurring losses as the price of IBP shares temporarily plummeted on belief that the merger was off.
March 29 is a key date, since that was when Tyson issued a press release contending it had been fraudulently induced into the merger and was backing out. Tyson cited a government investigation into alleged accounting discrepancies at an IBP unit called DFG Inc.
The news caused IBP shares to drop from $27.79 to as low as $14.50, court filings said.
According to the order issued Monday by Judge Sue Robinson of the U.S. District Court in Wilmington, Del., the plaintiffs contend that Tyson falsely said its reason for backing out was related solely to the investigation.
The hedge funds were engaged in merger arbitrage, in which they target corporations whose stock they believe isn’t accurately valued by the market during a potential merger.
Tyson finally bought IBP in September 2001.
In her 20-page opinion, Judge Robinson said Tyson had contended the lead plaintiffs’ sophistication “cuts against a finding that a class action is a superior forum” for resolving such claims. But she said that argument conflicts with Congress’ intent.
“Federal securities laws do not protect investors any differently, and certainly no less, simply because they engage in more complicated investment strategies,” she wrote.
Ed Nicholson, a spokesman for Tyson, the huge Springdale, Ark., meat processor, said the company considers the judge’s order a “normal procedural development. We will continue to vigorously defend this suit,” he said.
Plaintiffs include Aetos Corp., Pelican Limited Partnership, Stark Investments LP and Shepherd Investments International Ltd. Stark and Shepherd are hedge funds managed by Staro Asset Management LLC., St. Francis, Wis. Aetos and Pelican are funds managed by Arnhold & S. Bleichroder Advisers Inc., New York.
