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

Conflicts Engulf Christians in Mideast

Research finds an increase in faith-based hostilities, and Christians are facing persecution in a growing number of countries in the region More

Chinese Americans: Don’t Call Us 'Model Minority'

Label points to collective achievement, but some say it triggers resentment, unrealistic expectations More

Iran Bolsters Phone, Internet Surveillance

Does increased monitoring suggest the government is nervous? More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
West Africa Ebola Vaccine Trials Possible by Early 2015i
X
Carol Pearson
August 30, 2014 7:14 PM
A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video West Africa Ebola Vaccine Trials Possible by Early 2015

A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video Survivors Commemorate 70th Anniversary of Nazi Liquidation of Polish Ghetto

When the Nazi army moved into the Polish city of Lodz in 1939, it marked the beginning of a long nightmare for the Jewish community that once made up one third of the population. Roughly 200,000 people were forced into the Lodz Ghetto. Less than 7,000 survived. As VOA’s Kane Farabaugh reports, some survivors gathered in Chicago on the 70th anniversary of the liquidation of the Lodz Ghetto to remember those who suffered at the hands of the Nazi regime.
Video

Video Cost to Raise Child in US Continues to Rise

The cost of raising a child in the United States continues to rise. In its latest annual report, the U.S. Department of Agriculture says middle income families with a child born in 2013 can expect to spend more than $240,000 before that child turns 18. And sending that child to college more than doubles that amount. VOA’s Deborah Block visited with a couple with one child in Alexandria, Virginia, to learn if the report reflects their lifestyle.
Video

Video Chaotic Afghan Vote Recount Threatens Nation’s Future

Afghanistan’s troubled presidential election continues to be rocked by turmoil as an audit of the ballots drags on. The U.N. says the recount will not be completed before September 10. Observers say repeated disputes and delays are threatening the orderly transfer of power and could have dangerous consequences. VOA correspondent Meredith Buel reports.
Video

Video Ukraine Battles Pro-Russia Rebel Assault

After NATO concluded an emergency meeting to discuss the crisis in eastern Ukraine, the country is struggling to contain heavy fighting near the strategic port of Mariupol, on the Azov Sea. Separatist rebels are trying to capture the city, allegedly with Russian military help, and Ukraine's defense forces are digging in. VOA's Daniel Schearf spoke with analysts about what lies ahead for Ukraine.
Video

Video Growing Business Offers Paint with a Twist of Wine

Two New Orleans area women started a small business seven years ago with one thing in mind: to help their neighbors relieve the stress of coping with a hurricane's aftermath. Today their business, which pairs painting and a little bit of wine, has become one of the fastest growing franchises across the U.S. VOA’s June Soh met the entrepreneurs at their newest franchise location in the Washington suburbs.
Video

Video Ebola Vaccine Trials To Begin Next Week

The National Institutes of Health says it is launching early stage trials of a vaccine to prevent the Ebola virus, which has infected or killed thousands of people across West Africa. The World Health Organization says Ebola could infect more than 20,000 people across the region by the time the outbreak is over. The epidemic has health experts and governments scrambling to prevent more people from becoming infected. Zlatica Hoke has more.
Video

Video Asian Bacteria Threatens Florida Orange Trees

Florida's citrus fruit industry is facing a serious threat from a bacteria carried by the Asian insect called psyllid. The widespread infestation again highlights the danger of transferring non-native species to American soil. VOA’s George Putic reports.
Video

Video Aging Will Reduce Economic Growth Worldwide in Coming Decades

The world is getting older, fast. And as more people retire each year, fewer working-age people will be there to replace them. Bond rating agency Moody’s says that will lead to a decline in household savings; reducing global investments - which in turn, will lead to slower economic growth around the world. But experts say it’s not too late to mitigate the economic impact of the world’s aging populations. Mil Arcega has more.
Video

Video Is West Doing Enough to Tackle Islamic State?

U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Coalition to Fight Islamic State Could Reward Assad

The United States along with European and Mideast allies are considering a broader assault against Islamic State fighters who have spread from Syria into Iraq and risk further destabilizing an already troubled region. But as VOA State Department Correspondent Scott Stearns reports, confronting those militants could end up helping the embattled Syrian President Bashar al-Assad.
Video

Video Made in America Socks Get Toehold in Online Fashion Market

Three young entrepreneurs are hoping to revolutionize the high-end sock industry by introducing all-American creations of their own. And they’re doing most of it the old-fashioned way. VOA’s Julie Taboh recently caught up with them to learn what goes into making their one-of-a-kind socks.
Video

Video Americans, Ex-Pats Send Relief Supplies to West Africa

Health organizations from around the world are sending supplies and specialists to the West African countries that are dealing with the worst Ebola outbreak in history. On a smaller scale, ordinary Americans and African expatriates living in the United States are doing the same. VOA's Carol Pearson reports.

AppleAndroid

World Currencies

EUR
USD
0.7537
JPY
USD
103.79
GBP
USD
0.6032
CAD
USD
1.0957
INR
USD
60.522

Rates may not be current.