Chinese pork giant buys Smithfield Foods for $7bn
2013-05-30 14:13:55
Hong Kong-based Shuanghui International agreed to pay $7.1bn for America's Smithfield Foods, in a deal aimed at exploiting through US supplies the growing demand for pork by China's increasingly-wealthy consumers.
Shuanghui International - the majority shareholder of Henan Shuanghui Investment & Development, which is China's largest meat processor – agreed to pay $34 apiece for Smithfield Foods shares, a 31% premium to their closing price on Tuesday.
The deal, which values Smithfield Foods equity at $4.7bn, with a further $2.4bn in debt and liabilities, "provides Smithfield the opportunity to expand its offering of products to China", Shuanghui chairman Wan Long said.
Together, the groups "will be able to meet the growing demand in China for pork by importing high-quality meat products from the US, while continuing to serve markets in the US and around the world.
"The combination creates a company with an unmatched set of assets, products and geographic reach."
Company pressures
Indeed, for Shuanghui, the deal offers a chance to tap directly into US pork exports which, like many other foreign foods, are prized by Chinese customers concerned over the safety of some domestic products.
Shuanghui's reputation was dented by claims that some farms owned by Henan Shuanghui fed pigs with clenbuterol hydrochloride, a toxic additive, but one which produces leaner meat.
Meanwhile, Smithfield faces pressure from its main shareholder, Continental Grain, to boost shareholder returns.
Continental Grain has suggested a break-up of Smithfield, rather than a sale of the whole group.
Growth stimulant furore
Smithfield is also one of the few processors currently able to ship to China, which has imposed restrictions on imports of US pork over the use of ractopamine, a growth accelerator.
Larry Pope, the Smithfield chief executive, told investors two weeks ago that "China is closed to the US market, except for Smithfield.
"We have two of our plants which represent 43,000 hogs a day, a little over 10% of the industry, that we can ship into China and are shipping into China every day."
A third plant is due to become ractopamine-free as of next month, taking the total Smithfield production devoid of the chemical to 50%, he said.
Market reaction
On Wednesday, he said that the Shuanghui deal "is a great transaction for all Smithfield stakeholders, as well as for American farmers and US agriculture.
"We look forward to accelerating a global expansion strategy as part of Shuanghui."
Smithfield Foods shares stood 25.0% higher at $32.465 in morning deals in New York.