News / Economy

China's Appetite for Pork Spurs $4.7B Smithfield Deal

FILE - A Smithfield ham is seen in a grocery store in Richardson, Texas. Chinese meat processor Shuanghui International Holdings Ltd. agreed Wednesday, May 29, 2013, to buy Smithfield Foods Inc. for approximately $4.72 billion.
FILE - A Smithfield ham is seen in a grocery store in Richardson, Texas. Chinese meat processor Shuanghui International Holdings Ltd. agreed Wednesday, May 29, 2013, to buy Smithfield Foods Inc. for approximately $4.72 billion.
Reuters
China's Shuanghui International plans to buy Smithfield Foods Inc for $4.7 billion to feed a growing Chinese appetite for U.S. pork, but the proposed takeover of the world's No. 1 producer has stirred concern in the United States.
 
The transaction, announced on Wednesday, would rank as the largest Chinese takeover of a U.S. company, with an enterprise value of $7.1 billion, including debt assumption.
 
As it stands. the deal is the biggest Chinese play for a U.S. company since CNOOC Ltd offered to buy Unocal for about $18 billion in 2005. The state-controlled energy company later withdrew that bid under U.S. political pressure.
 
Like similar foreign transactions, the Smithfield deal will face the scrutiny of the Committee on Foreign Investment in the United States, or CFIUS, a government panel that assesses national security risks.
 
And at least one member of Congress said the deal raised alarms about food safety, noting Shuanghui was forced to recall tainted pork in the past.
 
“I have deep doubts about whether this merger best serves American consumers and urge federal regulators to put their concerns first,” U.S. Representative Rose DeLauro, a Democrat from Connecticut, said in a statement.
 
Shuanghui is already majority shareholder of Henan Shuanghui Investment & Development Co, China's largest meat processor. It would join forces with a company that has a worldwide herd of 1.09 million sows, according to industry data compiled by Successful Farming magazine.
 
The CFIUS review process comes at a time of sour relations between the United States and China over cross-border deals. In the latest irritant, a $20.1 billion bid by Japan's SoftBank Corp to control U.S. wireless carrier Sprint Nextel Corp has fanned fears of Chinese cyber-attacks against the United States.
 
Big Premium

Shuanghui offered $34 a share for Smithfield, a 31 percent premium to its closing stock price on Tuesday. The Chinese company will assume $2.4 billion of Smithfield's debt.
 
Shares of Smithfield, founded in 1936 as a single meat-packing plant in Smithfield, Virginia, rose as high as $33.96 on Wednesday.
 
It is still possible that counterbids could emerge.
 
Smithfield was in talks with two parties about a potential bid before the takeover by Shaunghui was announced, according to a source familiar with the matter. Bloomberg earlier reported Thailand's Charoen Pokphand Foods and Brazil's JBS SA had been preparing to bid for Smithfield when Shuanghui struck its deal, Neither CP Foods or JBS could be reached for comment.
 
Smithfield has 30 days to continue talks with the two parties, but cannot solicit bids from others, the source said. If Smithfield decides to take an offer from either company, it will pay a lower-than-average, break-up fee under the terms of the agreement, the source added.
 
Promise of No Displacements
 
Aiming to dispel any concern over major displacements, Shuanghui has promised no closures or relocations of Smithfield's operations and to keep current management, including Chief Executive Officer Larry Pope, in place.
 
In the town of Smithfield, which the local visitors bureau describes as rich in “hams, history and hospitality,” officials said they were shocked by the news.
 
“It was a total shock to us,” said Smithfield Mayor T. Carter Williams, who noted that his wife has worked for the company for a decade. “Right now, I don't think anybody here knows what's going to happen...the people in China say nothing is going to change. We would hope so.”
 
The agreement comes after Continental Grain Co, Smithfield's largest shareholder with a 5.8 percent stake, agitated for change, including a call to break up the company. Continental, could not be reached to comment on Shuanghui's proposal.
 
Pope said in a conference call with analysts that the company had been attempting to strike a deal with Shuanghui since 2009, long before Continental started its campaign.
 
“The Asian market is huge opportunity for us as a company,” Pope said. “We just haven't been able to put something together until today.”
 
Brian Bradshaw, a pig producer with operations in Illinois and Indiana who has sold hogs to Smithfield and its competitors, said the combination would boost U.S. pork exports. Still, he said he was worried about a foreign company owning Smithfield.
 
“Long term, I think it's not good to have foreign ownership, but that's just the American part of me,” he said. “I just think this is a move by China to make sure their population is going to get fed in a cheaper manner.”
 
The agreement highlights China's growing appetite for protein-rich food, particularly pork, the leading animal protein consumed there. As its middle class expands, the country is relying on foreign producers to keep pace with demand.
 
Food Scandals
 
Demand for U.S. meat in China has risen tenfold over the past decade, fueled in part by a series of embarrassing food safety scandals, from rat meat passed off as pork to thousands of pig carcasses floating on a river. Public anxiety over cases of fake or toxic food often spreads quickly.
 
Shuanghui itself became embroiled in a scandal over tainted meat two years ago, when it was forced to recall its Shineway brand meat products from store shelves on fear that some of it contained a banned feed additive called clenbuterol.
 
In that respect, the Smithfield deal may help quell Chinese concerns over the use of ractopamine, a similar additive commonly used by U.S. hog producers to bulk up animals with muscle instead of fat, without increasing the amount of feed.
 
Smithfield has been trying to stop using ractopamine, which has been banned in China and Russia, an effort that could enhance its appeal as an exporter.
 
Privately owned Shuanghui will finance the transaction through a combination of cash, rollover of existing Smithfield debt and debt financing produced by Morgan Stanley and a syndicate of banks. Both boards have approved the deal.
 
Barclays is the financial adviser to Smithfield and Simpson Thacher & Bartlett LLP and McGuireWoods LLP are legal counsel. Morgan Stanley is financial adviser to Shuanghui and Paul Hastings LLP and Troutman Sanders LLP are legal counsel.

You May Like

Photogallery Pistorius Sentenced, Taken to Prison

Pistorius, convicted of culpable homicide in shooting death of girlfriend Reeva Steenkamp, will likely serve about 10 months of five-year sentence, before completing it under house arrest More

UN to Aid Central Africa in Polio Vaccinations

Synchronized vaccinations will be conducted after Cameroon reports a fifth case of the wild polio virus in its territory More

WHO: Ebola Vaccine Could Be in Use by January

WHO assistant director Dr. Marie Paule Kieny says clinical trials of Ebola vaccines are underway or planned in Europe, US and Africa More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
After Decades of Pressure, Luxembourg Drops Bank Secrecy Rulesi
X
October 21, 2014 12:20 AM
European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Young Nairobi Tech Innovator on 'Track' in Security Business

A 24-year-old technology innovator in Nairobi has invented a tracking device that monitors and secures cars. He has also come up with what he claims is the most robust audio-visual surveillance system yet. As Lenny Ruvaga reports from the Kenyan capital, his innovations are offering alternative security solutions.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video North Carolina Emerges as Key Election Battleground

U.S. congressional midterm elections will be held on November 4th and most political analysts give Republicans an excellent chance to win a majority in the U.S. Senate, which Democrats now control. So what are the issues driving voters in this congressional election year? VOA National Correspondent Jim Malone traveled to North Carolina, one of the most politically competitive states in the country, to find out.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7798
JPY
USD
106.41
GBP
USD
0.6203
CAD
USD
1.1242
INR
USD
61.430

Rates may not be current.