Smithfield Foods to Exit Market After Shaunghui Buyout

Michael Teague |

HogsHong-Kong-based Shaunghui, majority owner of China’s largest meat processing business, is offering $4.7 billion for the world’s largest pork producer, Virgina-based Smithfield Foods (SFD).

The boards of both companies have approved the deal, while a green light is still needed from Smithfield shareholders, who would receive $34 a piece for their stakes in the company. Smithfield closed Tuesday at $25.97, while shares tore upward, gaining more than 25 percent to $32.52 during Wednesday’s trading.

The acquisition would likely be scrutinized by the U.S. Committee on Foreign Investment, who assesses the potential security risks behind business dealings. Last March, thousands of dead pigs were found floating in Shanghai waters, causing an uncharacteristically vociferous public outcry in an atmosphere that has been replete with food-supply problems.

Recently, Chinese authorities busted a criminal operation that had made over $1 million by selling rat meat to unwitting customers, and early in April the government has to slaughter large amounts of chicken over fears of H7N9 bird-flu contamination.

With Chinese investment in the U.S. set to break records for a second consecutive year, Shuanghui CEO Wan Long has recently expressed his desire to see his company become a player on the world stage, one of the world’s big three meat processors. Shuanghui already slaughters more than 15 million pigs per year, 2.7 million tons of meat overall out of 13 locations, and expects the purchase to help propel sales from the current 50 billion yuan to 100 billion by 2015.

Long also led the company through a period of scandal in 2011, when Chinese regulators detected banned growth hormones in pigs from some of Shuanghui’s small-farm suppliers, leading to a televised public apology from the company, along with greater efforts to improve oversight issues.

In addition to vastly expanding the company’s presence on the global stage, given Smithfield’s considerable share of the North American and European markets, an acquisition of this nature would also provide Shuanghui with the technological and managerial know-how that could prevent future contamination with much tighter chain of custody procedures and stricter internal controls.

The Chinese firm has agreed to not close any of Smithfield’s factories and will abide by previously negotiated collective bargaining agreements with the company’s workers. Including outstanding debt, the deal will total some $ billion, and once completed Smithfield will no longer be a publicly traded company.

The move comes as Smithfield’s largest shareholder Continental Grain Co., who has a nearly 6 percent stake, has been agitating for the breaking-up of the company into smaller components.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
DVA DaVita HealthCare Partners Inc. 65.61 -0.72 -1.09 464,644

Comments

Emerging Growth

Bee Vectoring Technologies International

Bee Vectoring Technologies International Inc, formerly Unique Resources Corp is an technology/agricultural industry company. It develops and owns bee vectoring technology that is designed to utilize bees as natural delivery…

Private Markets

Snapwire

A peer-to-Peer authentic photo marketplace disrupting the $10B commercial photography industry.

Wealthfront

Wealthfront is an automated investment service that serves as an alternative to traditional financial advisory services. The company manages a diversified, continually rebalanced portfolio of index funds on their clients’…