On May 29, Shuanghui International Holdings Limited announced it had entered into a definitive merger agreement with Smithfield Foods, Inc. (NYSE:SFD), the world’s largest pork producer and meat processor. The proposed transaction involves Shuanghui’s acquisition of outstanding Smithfield Foods, Inc. (NYSE:SFD) shares for $34/sh, and assumption of Smithfield’s net debt. While activist hedge fund Starboard Value has questioned the logic of the sale, that has only been a minor part of the story.
Smithfield Foods, Inc. (NYSE:SFD) Sale Regulatory Review
As part of the acquisition announcement, the companies noted that the transaction would be subject to relevant U.S. and Chinese regulatory review, including by U.S. antitrust authorities and the Committee on Foreign Investment in the United States (CFIUS). This afternoon, the Senate Agriculture Committee held a hearing on the pending acquisition, providing a platform for lawmakers to question company officials and other key witnesses about the transaction’s potential effects on food availability, domestic prices, small(er) producer profit margins, food safety, and animal welfare. Recent lawmaker and stakeholder letters, including one from a coalition of producer and consumer interests sent to CFIUS members yesterday (also embedded below), framed today’s debate.
The Talas Turkey Value Fund returned 9.5% net for the first quarter on a concentrated portfolio in which 93% of its capital is invested in 14 holdings. The MSCI Turkey Index returned 13.1% for the first quarter, while the MSCI All-Country ex-USA was down 5.4%. Background of the Talas Turkey Value Fund Since its inception Read More
The hearing was meant to ‘examine the Smithfield purchase, the largest acquisition of an American company by a Chinese company in history. The hearing is also more broadly meant to examine how the government review process of foreign acquisitions of U.S. companies addresses American food safety, protection of American technologies and intellectual property, and the effects of increased foreign ownership of the U.S. food supply.’
Smithfield Foods, Inc. (NYSE:SFD) Foods Senate Hearing
Reuters noted that lawmakers showed ‘ambivalence’ about the potential purchase of Smithfield Foods, Inc., questioning the CEO of the company over the proposed sale of the company to China’s largest pork producer.
In a move likely to appease populist voters, Senate Agriculture Committee Chairman Debbie Stabenow stated during the questioning ‘this is a precedent-setting case and we owe it to consumers, producers and workers to ensure we are asking the right questions and evaluating the long-term implications.’
There was bipartisan populism at play with trying to block the sale by using the ‘logic’ of double standards. He stated ‘”You know for a fact you could not do in China what they are doing here with Smithfield. Chinese regulators would laugh at you if you said, ‘Well, I’ll just buy Shuanghui.”‘
Smithfield Foods, Inc. (NYSE:SFD) CEO Larry Pope said he expected the deal to “drive growth and expansion not only for our growers but for the entire U.S. pork industry.” He said China’s huge protein deficit made it unlikely it would become a significant pork exporter.
“China is responsible for 50 percent of the world’s pork consumption and their demand is still growing, whereas pork demand in the U.S. has been declining for almost 15 years,” Pope told the panel.
Smithfield Foods also issued a press release today explaining the logic of the sale.
Coalition_Letter_to_CFIUS_on_Proposed_Shuanghui-Smithfield_deal_7-9-13 Shuanghui’s International Holdings,…