CHINA’S Shuanghui International agreed yesterday to buy Smithfield Foods for $4.7bn (£3.1bn) in cash, in a deal that will increase the flow of US-made pork to the world’s largest consumer of the meat.
The agreement comes after Smithfield’s largest shareholder agitated for change at the company, including a call to break up the Virginia-based pork producer.
The deal will be subject to review by the US Committee on Foreign Investment (CFIUS), Smithfield said in a statement, which will come at a time of testy relations between the US and China on matters of cross-border transactions.
The price of Shuanghui’s offer is $34 per share, a 31 per cent premium to Smithfield’s stock price. Shuanghui will assume $2.4bn of Smithfield’s debt. Shuanghui has promised to maintain Smithfield’s operations, staff and management. The thrust of the deal is to send the US made pork to China, a factor that sources believe would help during Shuanghui’s CFIUS review.
Privately owned Shuanghui plans to fund the acquisition using debt, the person added, with both Chinese and foreign banks providing loans.
Continental Grains, which owns a 5.8 per cent stake in Smithfield Foods, has been agitating for change. Last month it sent management a letter, urging the company to break itself up into three independent companies, to unlock shareholder value.
Continental, Smithfield’s biggest shareholder, said in April Smithfield should split into three companies, use the proceeds to buy back shares, restructure its business, and institute a dividend in line with peers.
Food safety and environmental pollution are chronic problems in China and public anxiety over cases of fake or toxic food often spreads quickly.
In March, more than 16,000 rotting pigs were found floating in one of Shanghai’s main water sources, triggering a public outcry.