Smithfield sale gets government green light

Published on: Sep 6, 2013

Smithfield sale gets government green lightWITH just over two weeks until its shareholders will vote on a proposed sale to Chinese meat processor Shuanghui International, Smithfield Foods’ pending sale has received the blessing of a key U.S. oversight body. The companies announced Sept. 6 that Committee on Foreign Investment in the United States (CFIUS) cleared the sale of the world’s largest pork processor and hog producer to the subsidiary of China’s largest meat processor.

CFIUS approval was the last key U.S. regulatory hurdle for the parties to cross on the way to sealing the $7.2 billion merger, announced May 29. Smithfield’s shareholders will meet to vote on the deal Sept. 24, and the two companies expect the transaction to close shortly following an affirmative vote.

“This transaction will create a leading global animal protein enterprise,” said Zhijun Yang, CEO of Shuanghui. “Shuanghui International and Smithfield have a long and consistent track record of providing customers around the world with high-quality food, and we look forward to moving ahead together as one company.”

Smithfield’s potential sale to a foreign owner has drawn criticism from a number of quarters of interest, particularly because the would-be parent company is from a country plagued in recent years by food safety and animal health scares. Several members of Congress have publically opposed the deal, with multiple Congressional committees holding hearings on the transaction.

Under the terms of the agreement, Smithfield shareholders are slated to receive $34.00 per share in cash, and Smithfield is slated to continue operating under its existing brand names as a wholly owned subsidiary of Shuanghui.

Investment fund Starboard Value made waves last week, stating publically that the fund – which owns nearly 6% of Smithfield’s stock – would oppose the deal, preferring to split the vertically-integrated company into three separate firms in a move to generate additional shareholder value.

Smithfield also released its first quarter fiscal results Sept. 6, reporting that net income fell nearly 36% compared with the same period last year, to $39.5 million, despite a 10% increase in sales, to $3.4 billion.

“The operating environment in fresh pork and our international business was difficult in the first quarter,” said Smithfield CEO C. Larry Pope. “Normal seasonal weakness in fresh pork was exacerbated by declines in key export markets, namely Japan, as well as China and Russia. Higher raising costs in our hog production businesses in Eastern Europe and Mexico adversely impacted earnings in our international segment.”

Perhaps taking a swipe at Starboard’s assertions about breaking up Smithfield’s highly-integrated business model, Pope noted that hog production earnings nearly tripled from last year on higher hog prices, helping lessen the adverse impact of weakness in other segments. Total pork operating profit for the quarter was $61.4 million; the fresh pork segment saw an operating loss of $36.5 million, but packaged meats netted a $66.5 million operating profit.

Pope said the first quarter would be the low point of the year for Smithfield, as the company migrates further toward its strategic plan of becoming a primarily consumer packaged meats company. “We are leveraging our integrated platform to augment this strategy,” he said.