News Column

Smithfield Stock Up on Report of Potential Split

March 26, 2013

Sarah Kleiner Varble

A report that Smithfield Foods Inc. is exploring the possibility of splitting up sent stock to a 52-week high on Monday for the biggest Hampton Roads-based company in the Fortune 500. And it stirred interest among Wall Street analysts and Smithfield-area community leaders, who are eager to hear what the company's next steps will be.

Smithfield recently hired investment banking giant Goldman Sachs to explore the possibility of dividing into three companies, Reuters reported Friday in a story that cited anonymous sources.

Company officials did not respond to requests for comment from The Pilot on Monday and have declined to comment to Reuters.

Vicki Bryan, an analyst for New York-based Gimme Credit LLC, said on Monday, however, that the pork company has reached a fork in the road.

"The worst thing they could do is nothing -- to continue as they are," said Bryan, who said she advocates the company either splitting up or making a major acquisition.

Bryan said Smithfield's reported hiring of Goldman is a responsible step. She said she believes the company would best be served by splitting off its hog-raising segment, which has drained earnings, or by acquiring another company for its profitable packaged-meat operation.

Smithfield is the nation's largest hog producer and processor. The company was ranked 218th on Fortune magazine's 2012 list, which showed Smithfield reaching $12.2 billion in annual revenue.

Al Casteen, who represents the town of Smithfield on the Isle of Wight County Board of Supervisors, said the company is hugely successful -- despite what some shareholders say.

"When you get to be the biggest, you've got to know an awful lot about what you're doing," Casteen said. "Smithfield is a master at this."

Smithfield's progress hasn't been enough for some shareholders, however. Continental Grain Co., which has a 5.8 percent stake in Smithfield, urged the company in a March 7 letter to hire an investment bank to determine whether it should split into three companies, institute a cash dividend or recruit new board members and executives.

Continental Grain complained that through March 1, Smithfield's stock price had dropped 26 percent during the 6-{-year tenure of C. Larry Pope, Smithfield's president and CEO.

Pope has countered that Smithfield's fiscal third-quarter earnings rose to nearly $82 million, despite the losses at its hog farms.

Smithfield's stock hit a 52-week high of $27.33 during trading on Monday and closed at $26.85, up 2.4 percent, on the New York Stock Exchange.

Since March 6, Smithfield's stock has gone up 20 percent.

Casteen wasn't sure what would happen if the company split up but said "it would be a shame" if a piece of it wound up getting sold to another company.

"So often as corporations grow, they outgrow their roots," Casteen said. "Smithfield has... always maintained a very loyal link to the town and to the county."

The company and its leaders have donated millions of dollars for parks and statues, he said, and Pope is in conversations with the city and county to build a baseball park for children.

Casteen said the county reduced its machinery and tools tax to 70 cents from 95 cents per $100 valuation in 2011 to benefit Smithfield and other industrial companies.

Lisa Perry, director of economic development for Isle of Wight County, said there's no way to know yet what would happen to the company -- or the community -- if Smithfield were to split up. The county has received no indication that the company is considering leaving.

"Whatever is good for Smithfield Foods ultimately is good for us," Perry said. The possibility of losing part of the business "concerns me, of course, but I spend more time worrying about what more could we be doing as a region to embrace this company and lift them up."

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