The boards of Smithfield Foods and its smaller rival Premium Standard Farms (PSF) have unanimously approved a definitive merger agreement under which Smithfield will acquire all of the outstanding shares of PSF through a merger.
Under the terms of the merger, each PSF share will be converted into the right to receive 0.678 Smithfield shares plus US$1.25 in cash, totalling $21.35.
It means the agreement has a total transaction value of approximately $810m, including the assumption of PSF’s approximately $117m net debt.
In addition, ContiGroup Companies, which owns 38.8% of PSF’s stock, has signed a shareholder support agreement committing to vote its PSF shares in favour of the transaction.
The transaction will require customary regulatory approvals as well as the approval of PSF’s shareholders but is expected to close in the first calendar quarter of 2007, the companies said.
PSF has approximately 32.0m shares outstanding, and Smithfield will issue approximately 21.9m shares in exchange for PSF shares.
Smithfield president and CEO Larry Pope said: “We are excited about the combination of PSF and Smithfield. This is a business we know very well and it relates directly to our core competence. We have strong expertise in both live hog production and in fresh pork processing. Strategically, this is a very good long-term fit and near-term, this combination should generate benefits for both organisations and our customers.”
As part of the deal, all current PSF hog production contracts will be honoured and Smithfield said it will remain committed to purchasing significant numbers of hogs on the open market.
PSF’s facilities will remain open and in operation at least at current production levels.
PSF president and CEO John Meyer said: “Our agreement to merge with Smithfield enables PSF’s shareholders to receive an immediate premium for their shares and continue to participate in the growth of Smithfield, a well-capitalised company with one of the best records of creating long-term shareholder returns of any company in any industry.