Starboard Value LP, one of the largest shareholders of U.S.
Smithfield Foods Inc.
) with beneficial ownership of approximately 5.7% has sent a
letter to Smithfield's board stating that the $4.72 billion
takeover bid from China's largest meat producer Shuanghui
International Holdings Ltd. is less than the company's actual
worth. Starboard also stated that the estimated value of the
company is $9 billion - $10.8 billion or $44 - $55 per share,
which is much higher than the deal price of $34 per share.
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. Smithfield's
stock will no longer be publicly traded once the deal closes in
the second half of the year.
The merger agreement was approved by both Smithfield and
Shuanghui's board and Smithfield believes that the merger will be
in favor of the company and its shareholders. Starboard also
believes that the deal will offer value to Smithfield
shareholders. However, Starboard thinks that it will be in the
best interest of the shareholders if Smithfield sells off its
various divisions like pork, hog production and international
business individually rather than divesting the whole business
all at once.
Per the merger agreement, Smithfield is prohibited from
looking for better offers for itself or contacting others who may
be interested in acquiring parts of the company. However,
Starboard is seeking a buyer for the company's individual
business units so that the shareholders get a better deal than
the proposed offer.
Prior to this buyout offer, Continental Grain Co., another
major shareholder, had sent a letter to the company in March
urging a split, in order to improve its underperforming business
and shareholder returns. After the deal with Shuanghui,
Continental Grain sold its entire stake in the company.
Last week, Smithfield posted fourth quarter and fiscal 2013
results. Its earnings missed the Zacks Consensus Estimate by
50.0% and declined 51.2% from the prior-year quarter due to weak
margins in the hog production business and decline in pork
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.
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 staples company, which is
worth considering, is
Flower Foods Inc
) with 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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