US meat group Smithfield’s stock price rose today (23 April) amid rumours that the company has been approached over a possible takeover by Chinese agricultural trading and processing group Cofco.
According to initial reports, Cofco and Smithfield are in talks over an offer of US$17 per share for Smithfield, news which sent the company’s stock up 2.3% at 9pm (GMT) to $10.55.
Responding to the rumours, Smithfield played down the news. In a statement to the press the company said: “Cofco is not offering to buy out Smithfield at $17 per share.”
Nevertheless, this has not dampened speculation that a deal could be on the table.
“The statement is very specific and there is certainly room for interpretation. It does not rule out negotiations, just the price,” Morningstar analyst Ann Gilpin told just-food.
According to Gilpin, the timing of any possible deal “makes sense” for Smithfield.
“They are highly levered and in poor financial shape…. They are in a very tough operating period and have reported quite high quarterly profit losses over a long period of time,” Gilpin said.
Earlier this month, Smithfield posted a third-quarter loss of $1.03bn and said it expects the fourth quarter to be “another difficult quarter” with continued substantial losses in hog production.
Gilpin said that the price tag of $17 per share is “really pretty high”.
“Cofco could get the deal lower,” she predicted.
Morningstar’s fair value price currently stands at $18 per Smithfield share, however, this is rated as a going concern, Gilpin added.
According to Gilpin, the acquisition could go through for as little as around $13 per share.
