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March 11, 2013

US: Smithfield to “review” Continental Grain criticism

Smithfield Foods has said it will "review" criticism from major shareholder Continental Grain into the US meat processor's strategy and the investor's call to split the company in three.

By Dean Best

Smithfield Foods has said it will “review” criticism from major shareholder Continental Grain into the US meat processor’s strategy and the investor’s call to split the company in three.

The world’s largest pork processor said it will review a letter sent by Continental Grain to the Smithfield board “in due course”.

Agribusiness Continental Grain, which owns around 6% of Smithfield, has called on the company’s board to consider splitting the business in three to improve returns for shareholders.

The investor suggested Smithfield could be split into a hog processor, a company supplying fresh pork and packaged meats and a business focused on its operations outside the US.

“It’s time for Smithfield to get serious about creating shareholder value,” Continental Grain wrote in a letter to the company’s board.

When contacted by just-food for further reaction to Continental Grain’s letter, Smithfield refused to comment.

The suggestion by Continental Grain, which criticised Smithfield’s hog and international businesses, follows questions from Wall Street on the meat group’s business structure.

In December, when Smithfield announced its half-year results, Credit Suisse analyst Robert Moskow asked Larry Pope, the company’s CEO, if he had considered “breaking up the business”.

“I’ve looked at that idea. It’s complex and not easy to do, and you’d be surprised how integrated this business is, particularly the pieces, how they tie together,” Pope said. He added the way Smithfield’s farms “tie into our meat business” was “the next competitive advantage” for the company.

However, Pope also said at the time that Smithfield was “essentially two companies – a commodity-based live production company and a fresh and processed consumer packaged meats company”. He also claimed Smithfield’s packaged meats business was worth more than the market capitalisation of the whole company.

In its letter to the Smithfield board last week, Continental Grain said the company’s US processing and packaged meats business could be a “uniquely valuable piece of Smithfield”.

Some have questioned Continental Grain’s strategy. One source familiar with the situation pointed out the investor sold off a million shares in Smithfield two weeks ago. “One could be forgiven for wondering why Continental is selling so much if it believes the stock is undervalued, and whether Continental is engaging in a pump-and-dump – pump up the stock price with its memo, and then continue selling the stock,” the source told just-food.

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