Smithfield Foods could soon be under the ownership of Chinese pork
company Shuanghui International, according to terms of a deal announced
Smithfield president and chief executive officer C. Larry Pope said its U.S. operations and management team would remain intact but that the company would have unprecedented export access to China.
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 would strengthen U.S. pork exports to Asia but would not shake things up for his 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.
Robert Bruner, dean of the University of Virginia's Darden School of Business and an expert on mergers and acquisitions, said the proposed 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.
"One of the motives for the deal certainly seems consistent with motives for other cross-border deals: the transfer of know-how," he said.
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."
The deal also connects a top hog farmer and pork producer, Smithfield, with a company in Shuanghui with access to a top pork export market, a point stressed by Pope.
Pope said that in the meat industry "I don't know if there's any precedent (for a deal) of this kind of magnitude" when it comes to a foreign buyer of a U.S. company.
But 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."
Local officials in the town of Smithfield said they were surprised by the news of the proposed acquisition.
"I was very surprised. I knew nothing about it," said Smithfield Mayor Carter Williams. "I don't think anyone in Smithfield knew anything about it"
Williams said he's reached out to officials at the company for more information about the deal.
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