China pork producer buys US peer
CHINA’s biggest pork producer, Shuanghui International Holdings, yesterday agreed to acquire Smithfield Foods for about $4.72bn to boost supplies for the nation that is the biggest consumer of the meat.
Closely held Shuanghui, parent of Henan Shuanghui Investment & Development, would pay $34 per share for the Smithfield, Virginia-based producer, both companies said yesterday. The offer is 31% more than Tuesday’s closing share price.
China’s consumption of pork is rising with the growth of its middle class, while questions are being asked about the safety of the country’s food supply.
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 takeover is valued at $7.1bn, including debt, which would make it the largest Chinese takeover of a US company, according to data. The deal was likely to face scrutiny by the committee on foreign investment in the US, said two people familiar with the situation who asked not to be identified because the information is private.
“On the one hand, pork is not directly an issue of national security as defence or telecoms might be,” Ken Goldman, a New York-based analyst for JPMorgan Chase who has a hold rating on the shares, said in a report yesterday. “On the other hand, if (the committee) 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.”
Smithfield rose 24% to $32.31 in early trade in New York.
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, says the statement.
Smithfield’s existing management team will remain and C Larry Pope will continue as president and CEO. The deal is expected to close in the second half of this year, pending approval by Smithfield shareholders and regulators.
Mr Pope told analysts yesterday that there had been a “growing relationship” between Smithfield and Shuanghui over the past four years. “China is a large and growing market.
“Asia as a whole is a tremendous and growing export opportunity for Smithfield.”
Smithfield shareholder Continental Grain has been pushing for changes at the meat producer in the past 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 pig-raising unit hurts returns. Bloomberg