Updated: Mar 5
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.