Chinese Meat Producer Shuanghui Group Buying Smithfield Foods For $4.7B, CFIUS Approval Not Certain

Shuanghui International Holdings Ltd., China's largest pork producer, agreed to pay $4.7 billion in cash for Smithfield Foods Inc., America's largest pork producer and the purveyor of Armour meat products, in what would be the largest takeover of a U.S. company by a Chinese company.

However, the deal with Shuanghui, the majority shareholder of China's publicly traded Henan Shuanghui Investment & Development Co., must be approved by the U.S. Committee on Foreign Investment in the United States, and getting such approval could prove challenging.

When the $4.7 billion purchase price, or $34 per share, is combined with the assumption of Smithfield Foods' debt, the value of the proposed deal rises to $7.1 billion, Smithfield Foods said Wednesday. The U.S. company has a market capitalization of about $3.6 billion and annual sales of some $13 billion.

The amount Hong Kong's Shuanghui, also known as Shineway, is reportedly willing to pay for all outstanding shares of the U.S. company represents an approximately 31 percent premium over the shares' Tuesday closing price. The stock was up more than 30 percent in premarket action. Closing is set tentatively for the second half of this year.

The Smithfield, Va., company has been under activist shareholder pressure to break itself into three separate entities. In March, Continental Grain Co., Smithfield's biggest shareholder with a stake of approximately 6 percent, publicly called on Smithfield to divide into three separate entities to unlock shareholder value. Specifically, Continental has wanted Smithfield to divest a majority interest in its loss-plagued pork production operation.

At the time, an analyst for Credit Suisse said there would only be more such calls from shareholders.

"We believe that the call from investors for a breakup of Smithfield Foods will only get louder from here and that it will push management to develop more aggressive solutions for value creations," Robert Moskow wrote in a note.

Shuanghui Chairman Wan Long said Wednesday that buying Smithfield Foods, which employs about 46,000 people, offers his company a number of advantages.

"The acquisition provides Smithfield the opportunity to expand its offering of products to China through Shuanghui's distribution network. Shuanghui will gain access to high-quality, competitively priced and safe U.S. products, as well as Smithfield's best practices and operational expertise," Wan said. "We were especially attracted to Smithfield for its strong management team, leading brands and vertically integrated model."

He also said Smithfield Foods CEO C. Larry Pope will remain head of Smithfield Foods, which will cease to be publicly traded.

Shuanghui operates production facilities in 13 Chinese provinces that produce a combined 2.7 million tons of meat per year.