Pork transaction makes Smithfield Foods stocks surge

Pork transaction makes Smithfield Foods stocks surge

Shares of Smithfield Foods surged Wednesday as news spread of the company’s plan to sell the enterprise to the Chinese meat producing company, Shaunghui International Holdings.

In a deal reached by the two companies, the Hong Kong-based giant will buy the country’s largest pork producer, Smithfield Foods for $4.7 billion. .
This represents the largest acquisition by a Chinese company for a U.S. company.

Shaunghui International Holdings possesses several of global businesses. These include food, logistics and flavoring products. It is also China’s largest meat processing enterprise. Smithfield Foods owns brands such as Armour, Farmland and its namesake.

According to sources, the boards of both the companies have unanimously approved the transaction. The transaction still needs approval from Smithfield Foods’s shareholders. To entice the shareholders to approve the deal, the Chinese company is offering about 30 percent more per share of Smithfield Food’s current stock price at $25.97 on Tuesday closing.

As soon as the news spread of the deal, Smithfield’s shares surged $6.52, or 25.13 percent, to $32.49 in morning trading Wednesday. Once the deal closes, Smithfield Food’s stock will be private and no longer available for public trading.

Under the terms of the agreement, Shuanghui International Holdings will not close any of Smithfield’s facilities and locations, including its headquarters in Smithfield, Virginia, with a population of 8,100. The company was founded in the same town in 1936.
Also, under the deal, Smithfield Food’s existing management team will remain intact and the collective bargaining agreements with Smithfield workers will remain in place. Smithfield Foods has approximately 46,000 employees.

“This transaction preserves the same old Smithfield, only with more opportunities and new markets and new frontiers,” Smithfield CEO Larry Pope said according to sources. “This is not a strategy to import Chinese pork into the United States … this is exporting America to the world.”

“People have this belief … that everything in America is made in China. Open your refrigerator door, look inside. Nothing in there is made in China because American agriculture is the most competitive and efficient in the world. This is the one place America can absolutely compete,” he said.

Shuanghui, has 13 facilities that produce more than 2.7 million tons of meat per year. It managing director,Zhijun Yang, told investors, “together we can be a global leader in animal protein…no other combination has such a great opportunity. He added that China and U.S are the most important markets.

In recent months, Smithfield’s second-largest shareholder, Continental Grain Co., has been pushing Smithfield to consider splitting itself up, in order to create shareholder value. In response, the company stated that it would review Continental Grain Co.’s suggestions “in due course.”
There was no immediate comment from Continental Grain regarding pending transaction.

In March, Smithfield Foods reported a rise in its net come by more than 3 percent, helped by its international business and its packaged meats such as deli meats, bacon, sausage, and hot dogs. However, according the sources, in order to offset commodity costs, the company still needs to raise prices but fears that it would risk cutting into its current sales if consumers opt for cheaper meats such as chicken.

By Perviz Walji

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