Starboard Value Renews Efforts To Derail Smithfield-Shuanghui Deal

Michael Teague |

Nearly two months ago, the activist investor fund Starboard Value LP took up a 5.7 percent stake in Smithfield Foods (SFD) , in a bid to prevent the world’s largest pork producer from following through on its buyout deal with China’s largest meat processor, Shuanghui International Holdings Ltd.

Starboard Value has consistently argued that Smithfield would be a far more valuable company if it were broken up into three different businesses, claiming that such an arrangement would lead to shares priced anywhere between $44 and $55, a healthy premium on Shuanghui’s $34 per share offer.

 Smithfield and Shuanghui agreed to a nearly $7 billion deal last May that included shares plus the company’s existing debt, but there are now some indications that the investment fund is upping the ante. On Friday, reports surfaced that Starboard has been trying to rally other investment funds as well as meat processors in order to create an attractive counter-offer and derail the Shuanghui deal.

According to sources, Starboard has contacted Blackstone Group LP (BX) , KKR & Co., and Tyson Foods Inc. (TSN) among others, and has solicited the services of Moelis & Co. and BDA Advisors Inc. to assist it in its efforts. Previously, another large Smithfield investor Continental Grain Co., who until recently held a 5.8 percent stake in the company, had also been pushing for a breakup, but eventually decided to support the Shuanghui deal.

But a counter-offer will be hard to pull off. The Memphis-based Southern Sun Asset Management LLC, who has a 3.5 percent stake in Smithfield, said that it would be difficult to reverse the progress that has already been made on the original buyout proposal unless the counter-offer was significantly better.

In July, Smithfield argued against a breakup in a regulatory filing in which the company stated that restructuring would be against the interests of shareholders because its hog production segment “created efficiencies and synergies.”

For its part, Shuanghui is interested in the American pork giant due to the company’s already-developed expertise in ensuring the quality and safety of its product, which is increasingly seen as crucial in China after a series of high-profile food quality scandals in the country in recent years. Shuanghui is not likely to give up the acquisition without a fight. The deal, if or when it goes through, will be the largest ever buyout of an American company by a Chinese one. Smithfield was down just barely, 0.1 percent, in midday trading to $33.61. Shares are up over 50 percent year-to-date.

[Image: Smithfield Logo, courtesy of Wikimedia Commons]

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Companies

Symbol Name Price Change % Volume
BX The Blackstone Group L.P. Representing Limited Par 25.06 -0.06 -0.24 4,169,847
CIBG Cibolan Gold Corp 0.04 0.00 0.00 55
TSN Tyson Foods Inc. 74.83 -1.19 -1.57 3,208,591

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