Overcoming safety concerns and a rigorous review process,
shareholders of U.S. meat producer
Smithfield Foods, Inc.
) have finally approved the company's proposed merger deal with
Hongkong-based Shuanghui International Holdings Limited.
Smithfield shareholders unanimously approved the decision as more
than 96% of the votes were cast in favor of the deal during a
special meeting yesterday.
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 is
expected to close on Sep 26, after which Smithfield will not
trade publicly and will become a wholly-owned subsidiary of
Shuanghui. 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.
The deal comes at a time when China is facing serious food
safety issues, which also raised questions over this merger. U.S.
regulators were concerned that the deal would jeopardize the
American food supply chain and harm the entire U.S. pork industry
as they did not find Shuanghui's food safety practices in China
However, Smithfield's CEO had assured that the transaction
will have no impact on the U.S. food supply and the company will
continue to produce pork maintaining highest food safety
standards and abiding by the U.S. regulations. The Committee on
Foreign Investment in the United States (CFIUS) approved the
proposed merger deal on Sep 6 after a 45-day review period in
order to check the food safety standards.
Initially, one of Smithfield's shareholders, Starboard, with
beneficial ownership of approximately 5.7% did not favor the
deal. Starboard was of the opinion that it will be in the best
interest of the shareholders if Smithfield divests its various
divisions like pork, hog production and international business
individually rather than divesting the whole business all at
Smithfield was also under pressure from another major
shareholder, Continental Grain, which urged the Smithfield board
to break up the company before the announcement of the Shuanghui
deal. But later, both consented to the Chinese offer.
We note that Smithfield's results have been sluggish since the
last few years as a result of higher grain costs and declining
pork demand. The company was also not able to increase pork
prices owing to the restricted consumer spending environment,
which led to losses.
The deal is the largest ever Chinese takeover of a U.S.
company and will open the doors for 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.
Smithfieldholds a Zacks Rank #4 (Sell). Meat producers that
are better placed and are worth considering include
Pilgrim's Pride Corp
Tyson Food Inc
) which hold a Zacks Rank #2 (Buy). Another food company
Pinnacle Foods Inc
) with a Zacks Rank #1 (Strong Buy) is also worth
PINNACLE FOODS (PF): Free Stock Analysis
PILGRIMS PRIDE (PPC): Free Stock Analysis
SMITHFIELD FOOD (SFD): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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