http://dealbook.nytimes.com/2013/05/29/smithfield-to-be-sold-to-shuanghui-group-of-china/
1:07 p.m. | Updated
Smithfield Foods, one of the country’s biggest pork producers, agreed on Wednesday to sell itself to one of China’s biggest meat processors for about $4.7 billion, a deal that would be the largest takeover to date of an American company by a Chinese one.
The deal, however, is likely to raise concerns over how the merged firm would address food safety issues.
Smithfield is a meat-producing empire whose operations extend from raising pigs to processing them into ham and pork products for an array of customers. Smithfield’s suitor, Shuanghui International, featured prominently in a scandal involving tainted Chinese pork two years ago.
The transaction will almost certainly face heightened scrutiny from American government regulators, including over issues of national security. Smithfield and Shuanghui plan to refer their transaction to a government panel that oversees foreign investments in the country.
Still, Smithfield has argued that the deal will be good for itself and the American farm industry by opening a broad path to selling more pork into a country with a growing appetite for meat.
“This transaction will allow us to access Asia in a big way,” C. Larry Pope, Smithfield’s chief executive, said in a telephone interview. “This is an export deal, and they are very interested in exporting products out of the U.S.”
Under the terms of the deal, Shuanghui will pay $34 a share for Smithfield, which is 31 percent above the company’s closing share price on Tuesday.
The two companies have shared ties for years, and have long discussed ways to deepen their partnership. Shuanghui has been especially keen to find ways to increase the amount of pork it could import from the United States, whose meat industry is much more cost-efficient.
Late last year, Mr. Pope said, the two discussed buying stakes in each other. Around March, an adviser to Shuanghui called Smithfield and offered a different approach: an outright takeover of the American company.
“They said, ‘Larry, let’s make this thing happen. We think you’re going to like it,’ ” Mr. Pope said.
One of the attractions of the deal, he added, was that it would solidify Smithfield’s relationship with an important player in the meat industry.
Although China, the world’s biggest market for pork, has begun introducing bigger farms and processing facilities, the country is still dominated by family-style farms and logistical bottlenecks that raise the cost of producing pork and other meat products.
The deal also fulfills one of the ambitions of the Chinese government: to encourage companies to go abroad by acquiring assets and resources and technical expertise.
In North America, Africa and Australia, Chinese companies, flush with cash, are buying up land and resources to help a country that is plagued by water shortages and short of arable land, a situation exacerbated by a long running property and infrastructure boom.
Shuanghui, which also goes by the English name Shineway Group, is a prominent meat processor in a country plagued by food safety scandals. In recent years, the Chinese government has announced a crackdown on food makers amid an outbreak of bird flu and infamous images of thousands of dead pigs floating in the Huangpu River in the city of Shanghai.
Two years ago, China’s biggest state-run television company, China Central Television, broadcast an investigation that found that Shuanghui was selling pork produced with clenbuterol, which is banned as a food additive in the United States, the European Union and China because of health risks.
That year, the country arrested scores of people for producing, selling and using clenbuterol, which is believed to produce leaner meat.
Shuanghui apologized and promised to improve its food safety program.
Founded nearly 20 years ago, the company was originally a state-run enterprise, until a division of Goldman Sachs and CDH Investments, one of China’s leading private equity firms, paid over $100 million several years ago to buy out the government’s interest.
Shuanghui now has a publicly listed company and other food divisions with assets of more than $5 billion.
The acquisition, which is subject to regulatory approval by the Committee on Foreign Investment in the United States, a Treasury-led panel that reviews that strategically important deals. The merger is expected to close in the second half of the year.
Shares in Smithfield leapt over 25 percent by midday on Wednesday, to $32.50. They have risen nearly 28 percent over the past 12 months.
Barclays and the law firms Simpson Thacher & Bartlett and McGuireWoods are advising Smithfield Foods, while Morgan Stanley and the law firms Paul Hastings and Troutman Sanders are advising Shuanghui.
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1:07 p.m. | Updated
Smithfield Foods, one of the country’s biggest pork producers, agreed on Wednesday to sell itself to one of China’s biggest meat processors for about $4.7 billion, a deal that would be the largest takeover to date of an American company by a Chinese one.
The deal, however, is likely to raise concerns over how the merged firm would address food safety issues.
Smithfield is a meat-producing empire whose operations extend from raising pigs to processing them into ham and pork products for an array of customers. Smithfield’s suitor, Shuanghui International, featured prominently in a scandal involving tainted Chinese pork two years ago.
The transaction will almost certainly face heightened scrutiny from American government regulators, including over issues of national security. Smithfield and Shuanghui plan to refer their transaction to a government panel that oversees foreign investments in the country.
Still, Smithfield has argued that the deal will be good for itself and the American farm industry by opening a broad path to selling more pork into a country with a growing appetite for meat.
“This transaction will allow us to access Asia in a big way,” C. Larry Pope, Smithfield’s chief executive, said in a telephone interview. “This is an export deal, and they are very interested in exporting products out of the U.S.”
Under the terms of the deal, Shuanghui will pay $34 a share for Smithfield, which is 31 percent above the company’s closing share price on Tuesday.
The two companies have shared ties for years, and have long discussed ways to deepen their partnership. Shuanghui has been especially keen to find ways to increase the amount of pork it could import from the United States, whose meat industry is much more cost-efficient.
Late last year, Mr. Pope said, the two discussed buying stakes in each other. Around March, an adviser to Shuanghui called Smithfield and offered a different approach: an outright takeover of the American company.
“They said, ‘Larry, let’s make this thing happen. We think you’re going to like it,’ ” Mr. Pope said.
One of the attractions of the deal, he added, was that it would solidify Smithfield’s relationship with an important player in the meat industry.
Although China, the world’s biggest market for pork, has begun introducing bigger farms and processing facilities, the country is still dominated by family-style farms and logistical bottlenecks that raise the cost of producing pork and other meat products.
The deal also fulfills one of the ambitions of the Chinese government: to encourage companies to go abroad by acquiring assets and resources and technical expertise.
In North America, Africa and Australia, Chinese companies, flush with cash, are buying up land and resources to help a country that is plagued by water shortages and short of arable land, a situation exacerbated by a long running property and infrastructure boom.
Shuanghui, which also goes by the English name Shineway Group, is a prominent meat processor in a country plagued by food safety scandals. In recent years, the Chinese government has announced a crackdown on food makers amid an outbreak of bird flu and infamous images of thousands of dead pigs floating in the Huangpu River in the city of Shanghai.
Two years ago, China’s biggest state-run television company, China Central Television, broadcast an investigation that found that Shuanghui was selling pork produced with clenbuterol, which is banned as a food additive in the United States, the European Union and China because of health risks.
That year, the country arrested scores of people for producing, selling and using clenbuterol, which is believed to produce leaner meat.
Shuanghui apologized and promised to improve its food safety program.
Founded nearly 20 years ago, the company was originally a state-run enterprise, until a division of Goldman Sachs and CDH Investments, one of China’s leading private equity firms, paid over $100 million several years ago to buy out the government’s interest.
Shuanghui now has a publicly listed company and other food divisions with assets of more than $5 billion.
The acquisition, which is subject to regulatory approval by the Committee on Foreign Investment in the United States, a Treasury-led panel that reviews that strategically important deals. The merger is expected to close in the second half of the year.
Shares in Smithfield leapt over 25 percent by midday on Wednesday, to $32.50. They have risen nearly 28 percent over the past 12 months.
Barclays and the law firms Simpson Thacher & Bartlett and McGuireWoods are advising Smithfield Foods, while Morgan Stanley and the law firms Paul Hastings and Troutman Sanders are advising Shuanghui.
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