## Facts

- IBP, Inc., a Delaware corporation, agreed to merge with Tyson Foods, Inc. through Tyson’s acquisition subsidiary, Lasso Acquisition Corporation.
- The merger resulted from an auction process in which Tyson sought to outbid another strategic suitor.
- Before signing, Tyson learned of serious accounting fraud at IBP subsidiary DFG Foods, including more than $30 million in earnings charges, and that DFG was subject to an impairment review.
- Tyson also received information indicating IBP faced a cyclical downturn and that IBP was expected to miss prior earnings forecasts.
- Despite these known risks, Tyson increased its bid and executed a merger agreement that permitted IBP to record additional DFG-related liabilities without breaching specified covenants and did not include an earnings guarantee or escrow tied to projections.
- After signing, market conditions and performance worsened; Tyson announced it would not close and filed an action seeking rescission/termination, asserting fraud, breaches of representations and warranties, and a contractually defined material adverse effect (MAE).
- IBP asserted cross-claims in Delaware seeking a declaration that the agreement remained binding and an order compelling closing; after trial, the court addressed IBP’s demand for specific performance and Tyson/Lasso’s defenses and counterclaims.

## Issues

1. Whether IBP’s post-signing developments constituted a breach of representations and warranties or an MAE permitting Tyson to terminate the merger agreement.
2. Whether IBP fraudulently induced Tyson to sign the merger agreement through misstatements or omissions about DFG, earnings prospects, or internal controls.
3. Whether equity should order specific performance compelling Tyson and Lasso to close on the agreed terms.

## Decision

- The court held Tyson lacked a contractual basis to terminate the merger agreement.
- The court found IBP’s performance deterioration and DFG-related matters did not constitute an MAE or otherwise establish termination-triggering breaches of the relevant contractual representations and warranties.
- The court rejected Tyson’s fraudulent-inducement theory, finding no material misrepresentation or concealment supporting rescission and concluding Tyson was sufficiently informed of the key risks before signing.
- The court granted specific performance and ordered Tyson and Lasso to consummate the merger under the agreement.

## Legal Principles

- An MAE provision is interpreted in light of the parties’ contractual risk allocation; known risks disclosed and accepted at signing generally cannot later be repackaged as an MAE-based termination right.
- Missed projections, without a negotiated earnings representation or closing condition tied to those projections, do not by themselves create a contractual right to terminate.
- Fraudulent inducement requires proof of materially misleading statements or omissions and reasonable reliance; a sophisticated buyer’s awareness of the alleged problems undermines reliance and rescission claims.
- Specific performance may be ordered in a public-company merger where the agreement is enforceable, the buyer lacks a valid termination right, and damages are inadequate to remedy the loss of the bargained-for transaction.

## Conclusion

The Court of Chancery enforced the merger agreement as written, holding that Tyson could not terminate based on alleged MAE, warranty breaches, or fraud where the asserted risks were known or contractually allocated, and it ordered specific performance compelling Tyson to close.


In re IBP, Inc. S’holders Litig., 789 A.2d 14 (Del. Ch. 2001)