China’s appetite for pork spurs $4.7 billion Smithfield buy

Shuanghui International Holdings is buying Smithfield Foods Inc SFD.N, the world’s biggest hog producer, for $4.7 billion to feed a growing Chinese appetite for U.S. pork, in a deal that has stirred concern among U.S. politicians.

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.

COMPLEX STRUCTURE

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.

Link: http://www.reuters.com/article/2013/05/30/us-shuanghui-idUSBRE94S0K920130530#zCDtfHVWxAz0b8Z3.97