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

Changing Under Pressure, IS ‘Potent’ as Ever

US intel officials describe Ramadi's fall as concerning, but say it isn't emblematic of larger effort to degrade IS capabilities More

Nigeria Fuel Shortage Shows Fragility of Africa’s Oil Giant

Although it is the largest oil producer in Africa, country has nearly ran out of fuel it needs to power its generators, cars and airplanes over the past week More

Arrested Football Officials Come Mainly From the Americas

US Justice Department alleges defendants participated in 24-year scheme to enrich themselves through corruption of international soccer More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
3D Printer Makes Replica of Iconic Sports Cari
|| 0:00:00
...    
🔇
X
George Putic
May 27, 2015 9:31 PM
Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video 3D Printer Makes Replica of Iconic Sports Car

Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video US Voters Seek Answers From Presidential Candidates on IS Gains

The growth of the Islamic State militant group in Iraq and Syria comes as the 2016 U.S. presidential campaign kicks off in the Midwest state of Iowa.   As VOA’s Kane Farabaugh reports, voters want to know how the candidates would handle recent militant gains in the Middle East.
Video

Video A Small Oasis on Kabul's Outskirts Provides Relief From Security Tensions

When people in Kabul want to get away from the city and relax, many choose Qargha Lake, a small resort on the outskirts of Kabul. Ayesha Tanzeem visited and talked with people about the precious oasis.
Video

Video Film Festival Looks at Indigenous Peoples, Culture Conflict

A recent Los Angeles film festival highlighted the plight of people caught between two cultures. Mike O'Sullivan has more on the the Garifuna International Film Festival, a Los Angeles forum created by a woman from Central America who wants the world to know more about her culture.
Video

Video Kenyans Lament Losing Sons to al-Shabab

There is agony, fear and lost hope in the Kenyan town of Isiolo, a key target of a new al-Shabab recruitment drive. VOA's Mohammed Yusuf visits Isiolo to speak with families and at least one man who says he was a recruiter.
Video

Video Scientists Say Plankton More Important Than Previously Thought

Tiny ocean creatures called plankton are mostly thought of as food for whales and other large marine animals, but a four-year global study discovered, among other things, that plankton are a major source of oxygen on our planet. VOA’s George Putic reports.
Video

Video US-led Coalition Gives Some Weapons to Iraqi Troops

In a video released Tuesday from the Iraqi Ministry of Defense, Iraqi forces and U.S.-led coalition troops survey a cache of weapons supplied to help Iraq liberate Mosul from Islamic State group. According to a statement provided with the video, the ministry and the U.S.-led coaltion troops have started ''supplying the 16th army division with medium and light weapons in preparation to liberate Mosul and nearby areas from Da'esh (Arabic acronym for Islamic State group).''
Video

Video Amnesty International: 'Overwhelming Evidence' of War Crimes in Ukraine

Human rights group Amnesty International says there is overwhelming evidence of ongoing war crimes in Ukraine, despite a tentative cease-fire with pro-Russian rebels. Researchers interviewed more than 30 prisoners from both sides of the conflict and all but one said they were tortured. Henry Ridgwell reports for VOA from London.
Video

Video Washington Parade Honors Those Killed Serving in US Military

Every year, on the last Monday in the month of May, millions of Americans honor the memories of those killed while serving in the armed forces. Memorial Day is a tradition that dates back to the 19th Century. While many people celebrate the federal holiday with a barbecue and a day off from work, for those who’ve served in the military, it’s a special day to remember those who made the ultimate sacrifice. Arash Arabasadi reports for VOA from Washington.
Video

Video Kenya’s Capital Sees Rise in Shisha Parlors

In Kenya, the smoking of shisha, a type of flavored tobacco, is the latest craze. Patrons are flocking to shisha parlors to smoke and socialize. But the practice can be addictive and harmful, though many dabblers may not realize the dangers, according to a new review. Lenny Ruvaga has more on the story for VOA from Nairobi, Kenya.
Video

Video Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam War

For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Female American Soldiers: Healing Through Filmmaking

According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.

VOA Blogs

World Currencies

EUR
USD
0.9152
JPY
USD
122.70
GBP
USD
0.6494
CAD
USD
1.2374
INR
USD
63.925

Rates may not be current.