The company offered 2.57 billion shares at HK$6.20 each, according to a statement to the Hong Kong stock exchange today. It may exercise a greenshoe option to sell an additional 385 million shares. Trading of the shares will start on August 5.
The share sale comes as demand is expected to pick up for the meat industry in China in the second half. Wan Long, Chairman and Chief Executive Officer, owns 9.1 percent of the Luohe, China-based meat packer through two holding companies.
The company is raising money to repay part of a $4 billion loan that funded its purchase of Smithfield Foods Inc., the biggest Chinese acquisition of a U.S. firm. WH Group revived the public offering in July, after scrapping plans to raise as much as $5.3 billion in April.
The share sale is taking place amid a meat scandal in China. Companies including Starbucks Corp. and KFC and Pizza Hut owner Yum! Brands Inc. have cut ties with food-processing giant OSI Group, after a Chinese television station discovered workers at its subsidiary in Shanghai repackaged and sold expired meat to restaurant customers. McDonald’s Corp., a longtime OSI partner, pulled beef, pork and chicken items from its Chinese restaurants.
The Chinese company, which bought U.S.-based Smithfield Foods Inc. in a landmark deal last year, sold 2.57 billion shares at a fixed price of 6.20 Hong Kong dollars, or 80 U.S. cents, people familiar with the situation said Tuesday.
The offer was smaller than the IPO the company withdrew in April—which was pegged at about US$5 billion—and cheaper in terms of valuation. Tuesday’s price represents 11.5 times forward 2014 earnings, rather than the 15 times to 20.8 times implied by the price range set in the original attempt.
The new pricing attracted strong interest from retail investors. The company set the retail tranche at 5% of the offering, but subscriptions exceeded the shares on offer by 55 times, prompting the company to raise the allotment for Hong Kong public investors to 10%, the people said.
The institutional tranche was expected to account for 95% of the deal but will now account for 90%. It received subscriptions for about three times the amount on offer.
WH Group has an option to sell additional shares after listing, which would raise the deal size to US$2.36 billion. It plans to list on the Hong Kong Stock Exchange on Aug. 5, according to its prospectus.
The IPO comes as Asia’s regional benchmark index hit a six-year high amid optimism over corporate earnings. The MSCI AC Asia Pacific is trading at 149.17, its highest level since June 2008, while Hong Kong’s benchmark Hang Seng Index is up about 6% in the past month.
It is the second-largest IPO this year in the city, following a US$3.11 billion January IPO by HK Electric Investments Ltd.,
which owns power plants and electricity-distribution networks in the city, according to Dealogic.
For the world’s biggest pork producer, China’s WH, a second try at an IPO looks set to succeed. WSJ’s Ramy Inocencio talks with Hong Kong bureau chief Ken Brown on why WH’s first IPO failed and why U.S. pork prices are cheaper than China’s.
The successful fundraising may bode well for IPOs in the second half of the year. There are a number of billion-dollar deals in the pipeline, including a US$2 billion IPO by BAIC Motor Corp., a Chinese car maker that is partly owned by Daimler AG, and a US$1 billion offering by China Grand Automotive Services Co., in which U.S.-based private-equity firm TPG Capital has a stake.
For the relaunched offering, WH Group had cut the number of underwriters to two— Morgan Stanley and BOC International, the investment-banking arm of Bank of China Ltd.—from 30. The large number of banks on the original deal caused confusion and poor communication with investors, people familiar with the situation previously said.
Investors had balked at the high valuation but WH Group declined to lower the price, even after scaling back the size to US$1.9 billion before scrapping it altogether.
Announced on Wednesday, the takeover would be China’s biggest of a U.S. company, with an enterprise value of $7.1 billion, including debt, and follows a call by Smithfield’s largest shareholder, Continental Grain Co, to break up the company. Continental could not be reached for comment on Shuanghui’s proposal.
The deal highlights China’s growing appetite for protein-rich food, particularly pork, as its middle class expands, making China more reliant on foreign producers.
“I think this is a move by China to make sure their population is going to get fed in a cheaper manner. It’s the right move for them,” said Brian Bradshaw, a pig producer with operations in Illinois and Indiana, who has sold hogs to Smithfield.”Time will tell whether it’s the right move for the rest of the pork industry.”
The deal will face scrutiny by the Committee on Foreign Investment in the United States (CFIUS), a government panel that assesses national security risks. At least one member of Congress said the deal raised alarms about food safety, noting Shuanghui was forced to recall tainted pork in the past.
“I have deep doubts about whether this merger best serves American consumers, and urge federal regulators to put their concerns first,” U.S. Representative Rose DeLauro, a Democrat from Connecticut, said in a statement.
Shuanghui, which controls Henan Shuanghui Investment & Development Co (000895.SZ), China’s largest meat processor, would be joining forces with a company that has a global herd of 1.09 million sows, according to Successful Farming magazine, and which raises close to 16 million hogs a year.
The U.S. firm, which also brings its grocery brands such as Armour, Eckrich and Farmland, earned 11 percent of its $13.1billion revenue in the year to April 2012 outside the United States, including in China.
Goldman Sachs’ (GS.N) main investing arm owns a 5.2 percent stake in an offshore affiliate of Shuanghui International, public filings show. Funds associated with China-focused private equity firm CDH own 33.7 percent of the same offshore affiliate, and Singapore state investor Temasek TEM.UL owns 2.8 percent.
Shares in Henan Shuanghui jumped as much as 10 percent in trading on the Shenzhen stock market on Thursday. Shares in Smithfield, founded in 1936 as a single meat-packing plant in Smithfield, Virginia, rose to as high as $33.96 on Wednesday, close to Shuanghui’s $34 offer price. Shuanghui is offering a 31 percent premium to Smithfield’s Tuesday closing price, and would take on $2.4 billion of Smithfield debt.
China’s biggest meat processor has announced to offer $4.7bn in cash for Smithfield Foods, the world’s largest pork producer based in Virginia, the U.S. If complete, this will be the largest Chinese takeover of a US company.
Shuanghui International said the agreed deal with Smithfieldwould bolster its ability to feed China’s growing demand while also addressing persistent concerns about food safety in the world’s most populous country.
The deal will face scrutiny from CFIUS, an inter-agency committee of the United States Government that reviews the national security implications of foreign investments in U.S. companies or operations.However, it is commented that because Shuanghui has no US operations, it might be difficult for opponents to argue that the deal should pose a threat to national security.
Shuanghui will pay $34 per share for Smithfield and assume the company’s debt, bringing the total value of thedeal to $7.1bn. The price represents a 31 per cent premium to Smithfield’s Tuesday close of $25.97. Smithfield shares rose 28 per cent on Wednesday to $33.35.
While consumers’ demand for meat is growing in China, the resulting strain on its food production industry is leading to food safety issues such as the recent discovery of dead pigs floating in a river near Shanghai.US pork producers, by contrast, have access to plentiful supplies of clean water and cheap corn, pigs’ main feedstock.
Therefore, the deal once completed, will help open the Chinese market for US meat producers and reduce Washington’s trade deficit with Beijing – factors that are likely to win over US farmers and politicians.
Previous allegations on Shuanghui’s use of illegal additive to rear pigs has raised customers’ concerns and damaged the company’s reputation. By taking over Smithfield, Shuanghui might be able to capitalize on the trust that the Chinese consumers place in American food safety standards.
Goldman Sachs has an indirect minority investment in Shuanghui.
Barclays advised Smithfield while Morgan Stanley advised Shuanghui.