Smithfield Foods could soon be under the ownership of Chinese pork company Shuanghui International, according to terms of a deal announced Wednesday morning.
Smithfield president and chief executive officer C. Larry Pope said the company’s U.S. operations and management team would remain intact and, through the deal, it would gain unprecedented export access to the Chinese market.
In the all-cash transaction — which still must clear antitrust hurdles in the U.S. and gain approval from the Chinese government and from Smithfield shareholders — Shuanghui will buy all outstanding shares of Smithfield for $34 a share, or a 31 percent premium over where the company’s stock stood on Tuesday at the close of trading.
The deal is worth $4.7 billion in cash and includes the assumption by Shuanghui of Smithfield’s debt, which, according to Reuters, amounts to $2.4 billion.
Pope, in a conference call shortly following the announcement, said the deal promises to boost Smithfield’s exports to Asia without shaking things up for employees.
“This transaction will not change their jobs or responsibilities in any way,” he said, adding there would be no plant closures associated with the deal.
Smithfield also said contracts negotiated with union workers would not be impacted by the deal, which was hailed by the United Food and Commercial Workers, which represents more than 16,000 of Smithfield’s 46,000 workers.
“The UFCW is pleased that current Smithfield management will stay in place and that all collective bargaining agreements will continue to provide strong wage and benefits for Smithfield workers following the sale,” said Joseph T. Hansen, the union’s international president in a news release.
The potential acquisition also has its critics, including a number of environmental groups that honed in on Shuanghui’s closure two years ago of a subsidiary’s plant that produced pork tainted with clenbuterol, a chemical banned for use in food in China and the U.S.
“This deal with … Shuanghui — a company with a very recent history of producing tainted food — raises the specter that Americans will lose more control of their food supply, be exposed to tainted food and be left with even more devastated farming communities and drinking water supplies as a result of increased industrialized meat production,” says a statement from Waterkeeper Alliance, a group that advocates for clean waterways.
Pope said the deal would have Smithfield exporting meat to China; not the other way around, but Waterkeeper Alliance said that such an arrangement would nevertheless mean more industrial farming and more pollution domestically.
“This will lead to an increase in production of pigs here, with the meat exported to China and other global markets, leaving us with dwindling natural resources, increased greenhouse gas emissions, and even more pig manure dumped on lands across the country,” the statement says.
The multi-billion-dollar deal stands in stark contrast to a vision presented by an activist Smithfield investor, Continental Grain Co., which in April called on other shareholders to force the company to separate or spinoff its relatively volatile hog-farming business from its lucrative packaged meat division.
Continental argued that not only should Smithfield separate its hog farm business and international operations but that it needed to overhaul its board of directors. And the agricultural investment firm put together a set of reforms for a shareholder vote at Smithfield’s next annual meeting, which has not yet been scheduled.
With a Shuanghui deal, however, Pope would remain in charge of U.S. operations while maintaining his vision for a vertically integrated company that controls all phases of hog production from farm to slaughterhouse to market.
Shuanghui’s offer, he said, “sort of validates our strategy we’ve had in place for 20 years,” said Pope, who also said Smithfield’s relationship with Shuanghui predates Continental’s more recent push for changes.
Yang Zhijun, managing director of Shuanghui, also called Shineway, stressed the importance of Smithfield’s “continuity” for his company.
“We like it the way it is,” Yang said. “We will not change the people, the places, the products (and) the leaders.”
Shuanghui is reportedly not the only company looking to buy Smithfield, according to comments board chairman Joseph Luter III made in an interview with the Wall Street Journal.
Luter didn’t name any potential suitors but told the newspaper that “lots of people love us.”
Robert Bruner, dean of the University of Virginia’s Darden School of Business and an expert on mergers and acquisitions, said the proposed Shuanghui transaction appears to be a good deal for Smithfield investors.
“The acquisition premium looks healthy and in line, if not slightly to the high side, for friendly mergers and acquisitions,” Bruner said.
Smithfield stock jumped $7.38 to $33.35 per share in trading Wednesday, coming in just below the $34 a share investors would receive if the acquisition is completed.
Bruner said “one of the motives for the deal certainly seems consistent with motives for other cross-border deals: the transfer of know-how.”
Shuanghui, he said, “seeks to draw on Smithfield’s operational excellence, particularly in quality standards and in branding in order to grow its business in China.”
“There are a host of examples where that’s worked, and in the past I can say that the ability of the acquirer to make good on its vision for exploiting Smithfield’s know-how depends a lot on post-merger integration.”
Reuters reported the deal would be the largest purchase of an American company by a Chinese company. Pope acknowledged the magnitude of the deal but said it should not trigger the typical sorts of fears about foreign ownership.
Instead he painted the transaction in a patriotic light, saying Smithfield will retain its management, employees and structure in the U.S., but beef up its shipments to China.
“People have this belief that … everything in America is made in China, but look in your refrigerator and nothing in there is made in China,” he said.
Now, he said, Smithfield and Shuanghui will be targeting Chinese fridges.
“This is not a strategy to import pork into the United States,” he said. “This is exporting America to the world.”
“Shuanghui has an extensive distribution system across China. Hog producers in Iowa ought to be thrilled by this.”
