Starboard Value LP, urged Smithfield Foods, Inc. (NYSE:SFD) to ditch its deal with a Chinese rival and split the company, reports The Wall Street Journal.

Smithfield Foods

Starboard Value’s Stake in Smithfield Foods

Activist investment fund Starboard Value LP announced that it has taken a 5.7 percent stake in the world’s largest pork producer and processor U.S.-based Smithfield Foods, Inc. (NYSE:SFD).

With the acquisition of 5.7 percent stake, Starboard Value LP has become the largest investor in Smithfield Foods, Inc. (NYSE:SFD), displacing Vanguard Group Inc from the position.

A major Chinese-holding company Shuanghui International Holdings Ltd has inked a deal in May to buy Smithfield Foods, Inc (NYSE:SFD) for $4.7 billion or $34 per share.

Letter To Smithfield Foods

In a letter sent to Smithfield Foods, Inc. (NYSE:SFD)’s board, the activist investment fund indicated that the world’s largest pork producer is worth more if the company were broken up into three divisions and subsequently sold. In a note published by Sharon Terlep in The Wall Street Journal, it has been indicated that the letter to Smithfield’s board has been reviewed by The Wall Street Journal wherein Starboard Value LP proposed division of Smithfield Foods, Inc. (NYSE:SFD) into U.S. pork production, hog farming and international sales of fresh and packaged meats.

Starboard Value LP in its letter to Smithfield Foods, Inc. (NYSE:SFD)’s board further elaborated that its analysis indicated that a separation of these businesses was entirely feasible and could be accomplished without significant tax leakage. Besides, the investment fund believes that there are several likely strategic acquirors for each of these divisions.  On a standalone basis, the investment fund also identified opportunities for increased operational efficiencies that, particularly in the Pork division, could dramatically improve operating margins and profitability.

Hence Starboard considers Smithfield Foods, Inc. (NYSE:SFD) as an attractive investment with significant potential upside based on improved execution and a separation of the operating divisions.

Thus, the investment fund feels a piece-by-piece sale of Smithfield Foods, Inc. (NYSE:SFD) businesses could result in greater value to the company’s shareholders than the proposed merger with Shuanghui International Holdings Ltd.

In its letter, Starboard Value LP also highlighted that the investment fund is fully aware that under the merger agreement with Shuanghui International Holdings Ltd, Smithfield Foods, Inc. (NYSE:SFD) is contractually prohibited from seeking superior offer for the company. However Starboard is seeking to identify and connect any strategic or financial buyer for Smithfield Foods, Inc. (NYSE:SFD)’s individual business units to explore the feasibility of structuring a sum-of-the-parts transaction that could deliver greater value for the shareholders of Smithfield Foods, Inc. (NYSE:SFD) than the proposed merger with Shuanghui International Holdings Ltd.