Smithfield Foods, Inc.
) has announced that its chief executive officer (CEO) C. Larry
Pope will reassure the U.S Senate Committee on Agriculture,
Nutrition and Forestry that Smithfield's merger with
Hongkong-based meat processor Shuanghui International Holdings
Ltd. will not hurt the food safety standards of the U.S.
Per the deal signed on May 30, Shuanghui will acquire all of
the outstanding shares of Smithfield for $34.00 per share
totaling $7.1 billion, including Smithfield's debt. The deal will
allow Smithfield to expand its footprint in China taking
advantage of Shuanghui's solid distribution network. As far as
Shuanghui is concerned, it will be able to meet the growing
demand for pork in its domestic market by gaining control of
Smithfield's brands, such as Smithfield, Armour and Farmland that
meet food safety standards.
The deal is expected to close in the second half of 2013 and
enjoys the support of local, state and national elected
officials, industry labor unions, U.S. hog farmers, leading
economic and international affairs academics and even U.S. based
food industry peers. However, the transaction is yet to receive
shareholder and related federal regulatory approvals.
The main concern for U.S. regulators is that the deal should
not jeopardize the American food supply chain and harm the entire
U.S. pork industry as they do not find Shuanghui's food safety
practices in China acceptable.
Smithfield's CEO has thus confirmed that the transaction will
have no impact on U.S. food supply and therefore it will continue
to produce pork maintaining highest food safety standards for
U.S. consumers and abide by the U.S. regulations.
In addition, Smithfield stated that it will continue its
contracts with more than 2,000 family farmers even after the
merger. Smithfield believes that the deal will create an
opportunity for U.S. hog farmers to expand production.
Smithfieldalso assured U.S. regulators that there will be no
change in the company's management team and all the employees of
Smithfield will be retained, following the completion of the
deal. 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 CEO.
Smithfield's results have been suffering since the last few
years as a result of higher grain costs and declining pork
demand. In addition, oversupply of hogs was resulting in lower
hog prices, which along with higher grain costs led to margin
We believe the deal will prove to be a boon for Smithfield, as
it will provide opportunities to increase the presence of its
brands in China. It will also be able to meet the rising demand
for pork in China, which takes about 50% of the world's pork
Smithfieldholds a Zacks Rank #3 (Hold). Meat producers like
Pilgrim's Pride Corp
Sanderson Farms Inc
Tyson Foods Inc
) are better placed and are worth considering. While Pilgrim's
Pride and Sanderson carry a Zacks Rank #1 (Strong Buy), Tyson
holds a Zacks Rank #2 (Buy).
PILGRIMS PRIDE (PPC): Free Stock Analysis
SANDERSON FARMS (SAFM): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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