30 May China’s biggest pork company buys world’s biggest pork producer
Shuanghui International Holdings, China’s biggest pork producer, has agreed to acquire Smithfield Foods for about $4.72 billion to boost supplies for the nation that’s the biggest consumer of the meat.
Closely held Shuanghui, parent of Henan Shuanghui Investment & Development Co, will pay $34 a share for the Smithfield, Virginia-based producer, both companies said in a statement. The offer is 31 percent more than the closing share price on the day.
China is the world’s largest producer and consumer of pork. Consumption is rising with the expansion of its middle class while there are questions being asked about the safety of the country’s food supply.
And China’s pork industry has not been without controversy. Recently two farmers were arrested after they sold 40 tonnes of diseased pork. Also, thousands of dead pigs were recently found floating in a river near Shanghai.
Smithfield’s livestock unit is the world’s largest hog producer, bringing about 15.8 million of the animals to market a year, according to the company’s website. It owns 460 farms and has contracts with 2,100 others across 12 US states.
The deal is the largest-ever Chinese acquisition of a US company. The takeover is valued at $7.1 billion including debt, which would make it the largest Chinese takeover of a US company, according to data compiled by Bloomberg. The deal is likely to face scrutiny by the Committee on Foreign Investment in the US, some commentators say.
“On the one hand, pork is not directly an issue of national security, as defense or telecom might be,” Ken Goldman, a New York-based analyst for JPMorgan Chase & Co who has a hold rating on the shares, said in a report. “On the other hand, if CFIUS comes to believe that Chinese ownership of the US’s largest hog farmer and pork supplier presents a food supply risk, then it may have a heightened concern.”
The takeover will be financed through a combination of cash, the rollover of existing Smithfield debt, and additional debt that has been committed by Morgan Stanley and a group of banks, according to the statement.
Smithfield’s existing management team will remain and Larry Pope will continue as president and chief executive officer. The deal is expected to close in the second half of 2013, pending approval from Smithfield shareholders and regulators.
Pope said on a conference call with analysts today that there had been a “growing relationship” between Smithfield and Shuanghui over the past four years.
“China is a large and growing market,” Pope said. “Asia as a whole is a tremendous and growing export opportunity for Smithfield.”
Smithfield shareholder Continental Grain Co.has been pushing for changes at the meat producer in the last few months. Continental Grain said in a letter in March that Smithfield should consider splitting into three businesses – one selling pork and packaged meats, another that runs hog farms, and a third based outside the US – because the unprofitable hog-raising unit hurts returns. The shareholder’s request came after Smithfield’s stock trailed competitors Hormel Foods and Tyson Foods’s in the prior year.
Source: Bloomberg