Continental Grain Co., one of the largest shareholders of U.S.
Smithfield Foods Inc.
) has agreed to sell its entire stake in the company, after
Smithfield agreed to its buyout by Hongkong-based meat processor
Shuanghui International Holdings Ltd. Per the deal finalized last
week, Shuanghui will acquire all of the outstanding shares of
Smithfield for $34.00 per share totaling $7.1 billion, including
Prior to this buyout offer, Continental sent Smithfield a
letter in March urging a split, in order to improve its
underperforming business and shareholder returns. Notably,
Smithfield had been struggling with its operations since the past
few years as a result of higher grain costs. In addition,
oversupply of hogs resulted in lower hog prices, which along with
higher grain costs led to margin declines. Smithfield was also
uncertain about the performance of its Hog Production segment in
the upcoming quarters.
Continental had suggested that Smithfield be split into three
independent companies by divesting the underperforming and
volatile Hog Production business and selected European assets.
The proceeds from asset sales could then be reinvested to buy
back more shares. The suggestion also involved restructuring of
the Packaged Meats segment.
Following its buyout, Smithfield 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 China 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. The deal is expected to close in the second half of
2013, once it receives shareholder and related federal regulatory
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
Smithfield holds a Zacks Rank #3 (Hold). 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
). It carries 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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