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Chinese company to acquire Smithfield Foods

June 6, 2013 | 0 comments

The world's largest pork producer and processor, Smithfield Foods, Inc., will soon be foreign owned.

Smithfield, a vertically integrated pork production empire with headquarters in Smithfield, VA, announced May 29 that it had entered into a merger agreement with Shuanghui International Holdings Limited in a deal valued at approximately $7.1 billion.

According to a Smithfield press release, the deal includes the Chinese company's assumption of Smithfield's net debt.

The buyer, Shuanghui International, is the majority shareholder of Henan Shuanghui Investment & Development, China's largest meat-processing enterprise and China's largest publicly traded meat products company.

The terms of the agreement have been unanimously approved by the boards of directors of both companies and the Chinese meatpacker will acquire all of the outstanding shares of Smithfield.

"This is a great transaction for all Smithfield stakeholders, as well as for American farmers and U.S. agriculture," said C. Larry Pope, president and chief executive officer of Smithfield in a statement.

"We have established Smithfield as the world's leading and most trusted vertically integrated pork processor and hog producer, and are excited that Shuanghui recognizes our best-in-class operations, our outstanding food safety practices and our 46,000 hard-working and dedicated employees."

Smithfield was founded in 1936 as a family business and transitioned into vertical integration in the 1980s.

Smithfield has facilities in 26 states, Mexico and 10 European countries. It raises 15 million pigs per year and processes 27 million pigs per year. Products from Smithfield are sold under a number of names.

Patrick Cudahy, with facilities in Cudahy, WI was acquired by Smithfield in 1984. John Morrell and Co. was acquired in 1995.

During this same period Smithfield built the world's largest hog processing facility in North Carolina.

Further acquisitions included Butterball, ConAgra Foods and Premium Standard Farms. As the company grew, there were some who decried its size and hold over the food production system in the United States.

National Farmers Union (NFU) President Roger Johnson said last week that his organization opposes the proposed purchase.

The news "makes it worth considering the impact of increased consolidation of agricultural markets," he said.

"With its vertical integration system of production, Smithfield was particularly attractive for purchase by a foreign company. Now, in one fell swoop, 26 percent of U.S. pork processing and 15 percent of domestic hog production will be controlled by a foreign company," Johnson said.

"It's likely that the U.S. pork market will feel additional downward pressure in prices, as Smithfield seeks to supply the Chinese market with cheap pork."

Johnson said he's concerned that consolidation in agricultural markets makes it easier for interests in other countries to control large portions of the U.S. food supply.

"Further study and understanding of concentration of markets is needed, along with enhanced enforcement of anti-trust laws," he said. "Independent family farmers and ranchers cannot succeed in the absence of protection from unfair, anti-competitive business practices by those who control the marketplace."


At Smithfield, officials said it will be "business as usual - only better."

"We do not anticipate any changes in how we do business operationally in the United States and throughout the world," Pope said.

"We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality. With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui."

Shuanghui chairman Wan Long said his company is a leading pork producer in China and a pioneer in the Chinese meat processing industry with over 30 years of history.

Wan said together the merged company will be able to meet the growing demand for pork in China by importing high-quality meat products from the United States, while continuing to serve markets in the United States and around the world.

"The combination creates a company with an unmatched set of assets, products and geographic reach," he added.

He said his company was especially attracted to Smithfield for its strong management team, leading brands and vertically integrated model.

Shuanghui is committed to continuing the long-term growth of Smithfield, and continuing to work with American farmers, producers and suppliers who have been critical to Smithfield's success, he added.

Upon closing of the transaction, Smithfield's common stock will cease to be publicly traded since the company will be a wholly-owned independent subsidiary of Shuanghui International Holdings Limited, operating as Smithfield Foods.

Pope will continue as president and chief executive officer of Smithfield, and the management teams and workforces of Smithfield's Independent Operating Companies will continue in place after the transaction.

Shuanghui said it would honor the collective bargaining agreements in place with Smithfield's union employees, as well as existing wage and benefit packages for non-represented employees. Under the agreement, there will be no closures at Smithfield's facilities and locations, and Smithfield's existing management team will remain in place.


The transaction will be financed through a combination of cash provided by Shuanghui, rollover of existing Smithfield debt, as well as debt financing that has been committed by Morgan Stanley Senior Funding, Inc. and a syndicate of banks. There is no financing condition to this transaction.

The closing of the transaction is subject to certain conditions, including approval by Smithfield's shareholders, the receipt of approval under applicable U.S. and specified foreign antitrust and anti-competition laws, The Committee on Foreign Investment in the United States and other customary closing conditions.

The transaction is expected to close in the second half of 2013.

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