Activist hedge fund Starboard Value has dropped its opposition to the $4.7 billion sale of Smithfield Foods, Inc. (NYSE:SFD) to Chinese meat processing company Shuanghui International, clearing the way for the merger, reports Michael J. De La Merced for The New York Times.
After failing to find an alternative, Starboard plans to vote for the merger
With just a 1.3 percent stake in the company, Starboard didn’t have enough control to block the deal on its own, and there hasn’t been opposition from other institutional investors, forcing Starboard to look for rival food companies to take part in an attempted takeover. It’s not clear which food companies were being courted (or even if any of them were interested), but Starboard claims it could have put together a better deal than the $34/share that Shuanghui is offering if it hadn’t been for restrictions in Smithfield Foods, Inc. (NYSE:SFD)’s current sale agreement. Now that it has failed to put together an alternative, Starboard plans to vote for the merger, according to regulatory filings.
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Equating food sanitation with national security is a stretch
This is the second obstacle Smithfield Foods, Inc. (NYSE:SFD) and Shuanghui have cleared in as many weeks, after the Committee of Foreign Investment in the United States decided to review the deal. CFIUS normally reviews deals involving key infrastructure, such as ports and power plants, and there has been some skepticism about why it got involved in a food industry deal—equating food sanitation with national security is a bit of stretch. Regardless, CFIUS approved the deal last Friday.
“This transaction will create a leading global animal protein enterprise,” said Shuanghui chief executive Zhijun Yang after the decision. “Shuanghui International and Smithfield Foods, Inc. (NYSE:SFD) have a long and consistent track record of providing customers around the world with high-quality food, and we look forward to moving ahead together as one company.”
Smithfield Foods is biggest pork producer in the U.S.
The appeal for Shuanghui is clear: Smithfield Foods, Inc. (NYSE:SFD) is the biggest pork producer in the U.S., and demand for pork has gone up in both countries in recent years. Acquiring Smithfield gives them a more robust supply chain and a firm position in the U.S. market.
The only remaining obstacle is the shareholders vote on September 24, but with no apparent opposition it would be something of a shock if the merger wasn’t approved.