Smithfield Foods Inc.
) has agreed to its buyout by Hongkong-based meat processor
Shuanghui International Holdings Ltd. for $7.1 billion, including
Shuanghui will acquire all of the outstanding shares of
Smithfield for $34.00 per share in cash. The deal is expected to
close in the second half of 2013, once it receives shareholder
and related federal regulatory approvals.
Following the completion of the deal, Smithfield will not
trade publicly and will become a wholly-owned subsidiary of
Shuanghui International Holdings Limited. It will operate
as Smithfield Foods. There will be no change in the company's
management team and all the employees of Smithfield will be
retained. Virginia will continue to remain the headquarters of
Smithfield and C. Larry Pope will carry on in his
responsibilities as the company's president and chief executive
The deal is a strategic fit for Smithfield as it will be able
to expand its footprint in China taking advantage of Shuanghui's
solid distribution network. On the other hand, the deal will
allow Shuanghui, which is a leading pork producer in China, to
meet the growing demand for pork in the country by gaining
control of Smithfield's brands, such as Smithfield, Armour and
Farmland that meet food safety standards. The combined company
will thus have greater access to the aggressively growing Chinese
and U.S. pork industries.
Smithfield has been under pressure to improve its business
since the past few years. Smithfield's results have been
suffering since last few years as a result of higher grain costs.
In addition, oversupply of hogs was resulting in lower hog
prices, which along with higher grain costs was leading to margin
declines. Smithfield was also uncertain about the performance of
its Hog Production segment in the upcoming quarters.
Prior to this buyout offer, Smithfield was considering
splitting itself up, being constantly pushed by its
second-largest shareholder, Continental Grain Co., in order to
improve its underperforming business and shareholder returns.
Continental had suggested that Smithfield be split into three
independent companies by divesting underperforming and volatile
Hog Production business and selected European assets; and
reinvesting the proceeds from asset sales in additional share
repurchases. The suggestion also involved restructuring of the
Packaged Meats segment.
We believe the deal will prove to be a boon for Smithfield,
which has been struggling of late. It will provide opportunities
to increase the presence of its brands in China and also meet the
rising demand for pork.
Smithfield holds a Zacks Rank #4 (Sell). Meat producers like
Pilgrim's Pride Corp
Sanderson Farms Inc
), carrying a Zacks Rank #1 (Strong Buy), are better placed and
are worth considering. Another consumer staple company which is
worth considering is
Flower Foods Inc
) which also holds a Zacks Rank #1.
FLOWERS FOODS (FLO): Free Stock Analysis
PILGRIMS PRIDE (PPC): Free Stock Analysis
SANDERSON FARMS (SAFM): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
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