Hedge fund calls bid for Smithfield too low

Says company in pieces would be worth more

The proposed sale of Smithfield Foods to China’s largest meat processor was muddied Monday after a hedge fund suggested investors could get a much better price.

New York-based investment firm Starboard Value, which owns about 5.7% of Smithfield’s common stock, says Shuanghui International Holdings’ offer of $34 a share could be topped by up to 62%.

Starboard suggests Smithfield could be worth between $44 and $55 a share if the company were to carve itself into pieces and sell off the units.

Starboard estimates the value of the Virginia-based pork producer is $9 billion to $10.8 billion — roughly $44 to $55 a share. Smithfield plans to sell itself for about $7.1 billion to Shuanghui, including assumed debt. Shares of Smithfield rose 28 cents to $33.08 in trading Monday.

Starboard provided a copy of the proposal it sent to Smithfield when contacted for comment. Starboard CEO Jeffrey Smith said on CNBC that he is not trying to kill the Shuanghui deal. Smithfield should make a deal in the best interests of shareholders, he said.

In a statement, Smithfield said it will review Starboard’s letter, but it also said Shuanghai’s offer was a 31% premium over the company stock price before the deal was announced. “Smithfield reaffirms its recommendation that its shareholders approve the Shuanghui merger,” the statement said. Shuanghui declined to comment.

The proposed purchase of the USA’s biggest pork producer has stoked some worries about a Chinese company buying a major food producer. Concerns about food safety and dangerous products from China have alarmed some consumers.

Smithfield’s board will certainly look at Starboard’s analysis, and it might even open the doors for other firms to make offers, says Brett Hundley, analyst at BB&T Capital Markets. Even so, the Shuanghui deal will likely go through and is still the best option for Smithfield investors, Hundley says.

Other suggestions of a breakup never worked out, he says.

Continental Grain, until recently one of Smithfield’s largest shareholders, months ago said Smithfield could have a breakup value of $42 to $55 a share, Hundley says.

Continental Grain has since indicated that $34 a share was fair and has been reducing its Smithfield holdings, Hundley says. “We thought that was quite telling,” he says.

Starboard is a relatively new owner of Smithfield stock and will likely have less sway with the board, he says.

“Both management and the board will prefer for the Shuanghui deal to go through,” Hundley says.