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September 20, 2013

US: Activist fund Starboard Value to back Smithfield takeover

Hedge fund Starboard Value, which has criticised the sale of Smithfield Foods to China's Shuanghui International, said today (20 September) it would vote in favour of the deal.

By Dean Best

Hedge fund Starboard Value, which has criticised the sale of Smithfield Foods to China’s Shuanghui International, said today (20 September) it would vote in favour of the deal.

The fund, a shareholder in Smithfield and critic of the Shuanghui bid, had earlier this month claimed it had secured indications of interest in the US pork processor from rival bidders. However, in a Smithfield filing today, Starboard said it had “proved challenging” for the “bidder group” to come up with a bid before the shareholder meeting set for Tuesday that will vote on the Shuanghui offer.

In light of the restrictions imposed by the merger agreement between the issuer [Smithfield] and Shuanghui, and the requirement of structuring a cash bid from a single entity, it proved challenging for the bidder group to formalise and deliver an alternative proposal prior to the special meeting scheduled for September 24, 2013 at which time shareholders will vote on the proposed merger,” Starboard said.

“While we are confident that the issuer could have received value in excess of that available pursuant to the proposed merger, we are not able to offer shareholders an alternative proposal at this time. Therefore, at this time, unless another proposal emerges, we plan on voting in favor of the proposed merger.”

Starboard had claimed Shuanghui’s bid had “significantly under-valued” the US pork giant and sought out interest from possible rival bidders.

The fund, which owns 5% of Smithfield, had argued dividing the company’s units and selling them separately would offer better value to shareholders.

Two weeks ago, Starboard managing member Jeffrey Smith wrote to the Smithfield board to say the fund had secured “non-binding written indications of interest … for each of Smithfield’s assets, which in the aggregate imply a total value for Smithfield at a price substantially in excess of the $34 [a share] cash deal with Shuanghui”.

In the letter, which was posted with the SEC, Smith urged Smithfield investors to say they would vote against Shuanghui’s bid at a meeting to decide on the deal on 24 September – in order, it said, to give the pork processor time to consider rival offers.

However, two corporate advisory firms – ISS and Glass Lewis – subsequently said shareholders should back the takeover, which, including debt, values Smithfield at $7.1bn.

Smithfield CEO Larry Pope has called the takeover a “great deal”, allowing the company to exploit growing demand in China.

The deal, if it is finalised, will be the largest of a US company by a Chinese firm. 

Shuanghui CEO Zhijun Yang has said: “This transaction will create a leading global animal protein enterprise. Shuanghui International and Smithfield 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.”

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