In order to fund the proposed merger of U.S. pork processor
Smithfield Foods, Inc.
) with Hongkong-based meat processor Shuanghui International
Holdings Ltd, Sun Merger Sub, Inc. recently announced the pricing
of senior notes aggregating $900 million, an extension of its
$800 million offering announced last week. Sun Merger Sub is an
indirect wholly-owned subsidiary of Shuanghui and will merge with
Smithfield at the time of the acquisition.
As was previously discussed, these notes will be offered to
qualified institutional buyers in the U.S. in two series. One
series of senior notes with principal amount of $500 million will
carry an interest rate of 5.250% and will mature in 2018. The
other one with a principal amount of $400 million will bear an
interest of 5.875% and will mature in 2021.
The notes offering will close on Jul 31. Upon closing, the net
proceeds from the note offering will be deposited into an escrow
account, from where the proceeds will be used to fund the
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
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.
U.S. regulators are concerned about the unfavorable effects of
the deal, if any, on the American food supply chain and the U.S.
pork industry. They are apprehensive of Shuanghui's food safety
practices in China. Last week, however, Smithfield's CEO
confirmed that the transaction will have no impact on U.S. food
supply and that it will continue to produce pork in compliance
with U.S. food safety regulations.
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 consumes about 50% of the world's pork
Smithfield holds 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 Sanderson
carries a Zacks Rank #1 (Strong Buy), Tyson and Pilgrim's Pride
hold 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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