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September 5, 2013

US: Starboard fund: Rival suitors could offer more for Smithfield

Hedge fund Starboard Value, an investor in Smithfield Foods critical of its planned sale to China's Shuanghui International, has claimed rival interest in the US pork group could lead to a better offer for the business.

By Dean Best

Hedge fund Starboard Value, an investor in Smithfield Foods critical of its planned sale to China’s Shanghui International, has claimed rival interest in the US pork group could lead to a better offer for the business.

Starboard, which argues Shuanghui’s US$7.1bn takeover bid under-values the US company, has insisted the pork processor would be worth more if it was split up and assets sold separately.

The fund has spent two months seeking alternative interest in Smithfield. In a letter to the Smithfield board this week, Starboard managing member Jeffrey Smith said 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 cash deal with Shuanghui”.

Smith said: “Based on these indications of interest, we are currently in the process of working with the indicated buyers to construct an alternative all-cash proposal from a single entity for the acquisition of Smithfield that, we believe, could be deemed by the Board to be reasonably likely to lead to a superior proposal under the terms of the merger agreement with Shuanghui.”

Smithfield’s shareholders are scheduled to vote on the Shuanghui offer on 24 September. However, under the terms of the deal with Shuanghui, Smithfield’s board can postpone the meeting if it cannot secure enough votes in favour of the takeover. Smith said Starboard intended to vote against the Shuanghui deal in a bid to get Smithfield to push back the meeting in order to canvass for rival offers. Smithfield, he said, can only consider alternative bids if they come in before any vote on the Shuanghui offer.

Smith said: “By voting against the proposed merger at the special meeting on September 24, 2013 we are voting in furtherance of trying to compel Smithfield to postpone or adjourn the special meeting for a period of time to allow it to continue soliciting votes in favor of the proposed merger.”

The Starboard executive insisted indications investors would vote against the Shuanghui offer would not threaten the bid. Smith said Shuanghui would only be allowed to pull its bid for two reasons: if it is not completed by an agreed date, 29 November, six months after the annoucement of its offer; or if the shareholder meeting has concluded with investors backing the bid.

“Despite what Smithfield may say in the coming weeks in order to scare shareholders into voting to approve the proposed merger at the special meeting, we fully expect Smithfield to postpone or adjourn the special meeting immediately prior to the scheduled September 24, 2013 date if it does not have the votes to approve it, since failure to do so would give Shuanghui the ability to unilaterally terminate the merger agreement,” Smith said.

He added: “To be clear, we are working with interested third parties to submit an alternative proposal, as expeditiously as possible, that we believe the board should determine is reasonably likely to result in a superior proposal, thereby allowing for time to complete due diligence. Our ultimate objective is for a third party to deliver a binding definitive agreement in a form substantially similar to the existing merger agreement prior to the November 29, 2013 outside date. It is quite possible that an alternative proposal could be submitted prior to the currently scheduled special meeting to be held on September 24, 2013.

“However, we think it is crucial to recognise that the mechanics of the proposed merger give shareholders the ability to compel a temporary delay to the special meeting and that a vote against the proposed merger at this juncture would not, in and of itself, create material risk to the eventual consummation of the transaction with Shuanghui should it ultimately prove to be the best deal on the table.

“The board, however, cannot take these steps to adjourn or postpone the special meeting on its own. The company has an obligation under the merger agreement to call, convene and hold the special meeting unless it needs additional time to solicit additional proxies in order to obtain shareholder approval.”

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