Blog: Shuanghui's Smithfield Foods offer gets more support in US investor circles

Dean Best | 16 September 2013

A second firm of advisors to investors has said shareholders in Smithfield Foods, the world's largest pork processor, should accept the $7.1bn takeover bid from China's Shuanghui International.

Glass Lewis & Co., a proxy voting and corporate governance advisory firm, said Shuanghui's offer, which has been dismissed by one key investor in Smithfield as under-valuing the pork firm, as "favourable" and said shareholders should back the bid when they vote on it next week.

The recommendation follows a similar announcement from another advisory firm ISS, which said last week shareholders should back Shuanghui's offer at a special meeting that will take place on 24 September.

Shuanghui's bid to buy Smithfield has been in the headlines ever since it was announced in May. The move by the Chinese firm caused some unease in political circles in the US but earlier this month a key government committee that scrutinises whether foreign takeovers of US assets have national security implications cleared the offer.

A second recommendation will further cheer Shuanghui and Smithfield's board, which backed the offer when it was made in May, but which has faced criticism from a large shareholder, hedge fund Starboard Value, which owns more than 5% of the company.

"Both Glass Lewis and ISS recognise the significant value that the proposed combination will deliver to all Smithfield shareholders. We look forward to completing this transaction and beginning a new chapter in Smithfield's long and successful history. On behalf of the entire board of directors, I urge all Smithfield shareholders to follow the recommendations of both Glass Lewis and ISS and vote for the proposal to approve the merger agreement," Smithfield president and CEO Larry Pope said.

Starboard Value has claimed Shuanghui's $34-a-share bid "significantly under-values" Smithfield and argues the company could fetch more if it was split up and then sold off.

A fortnight ago, Starboard wrote to Smithfield's board to say it 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". It urged Smithfield's shareholders to say it would vote against the Shuanghui bid next week in order to get the company to postpone the meeting in order to canvass more offers.

In telling shareholders to back the Shuanghui bid, ISS said there was a "chance the alternate sales process may ultimately lead to a superior proposal" but added there was "no hard evidence" that meant shareholders should vote against the offer.

Will evidence emerge in the next week?