Blog: Smithfield sale ups speculation over further Chinese investment
Katy Askew | 29 May 2013
Chinese pork group Shuanghui International has offered to buy out US firm Smithfield Foods for a hefty 31% premium, sending shares in US protein groups up in early trade today (29 May).
The proposed acquisition, announced this morning, sees the Chinese firm offering US$34 per share for the pork group, making for a total transaction value of $7.1bn.
Commenting on the news in a conference call, Smithfield CEO Larry Pope said the deal was "certainly" the largest transaction between the US and China in the food sector. The sheer scale of the purchase set shares in other meat groups up on the news.
Tyson stock rose 2.28% in early trading, while Hormel Foods' shares were up almost 1%. Hillshire Brands also edged up.
Smithfield has been the focus of attention from activist investor Continental Grain pressuring the company to increase shareholder returns for some time. Last month the agribusiness suggested the firm should divide into three units. Management rebuffed the suggestion at the time and today insisted the price premium justified its business model.
Pope said the offer price reflected the benefits offered by Smithfield's vertically integrated supply chain and the "value" the Chinese firm saw in that - particularly given the food safety scares that plague the Chinese food sector.
This factor has fuelled speculation cash-rich Chinese food companies could look to step up investment in the US food sector in a bid to benefit from its higher safety standards and helped drive other the shares in US protein majors higher.
However, speaking on the conference call, Shuanghui ruled out expanding its position in the US protein space through further M&A.
Shuanghui chairman Wan Long said: "In China, Shuanghui's focus is on processing pork protein. Apart from pork we don't have intention from expanding into other proteins."
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