ANALYSIS - As the repercussions of the takeover of Smithfield Foods by the Chinese giant Shuanghui still resound across the US and across the China Sea, further consolidation of the meat processing industry was seen this week with the acquisition of Marfrig’s Brazilian interests in the pig and poultry processor Seara by JBS.
The buyout for a reported $3 billion will increase JBS’s dominance of the global meat processing sector.
Already the leading beef processor with interests not only in Brazil, but also in the US, Canada, Australia and Europe, the deal increases the company’s presence in the pig and perhaps more significantly in the poultry sector.
In recent years, JBS has stepped in to rescue or buy out at competitive prices major poultry processing concerns such as Pilgrims' Pride in the US and the Frangosul interest of the French poultry processor Doux.
For Marfrig, the sale, which also included the OSI Alimentos leather business in Uruguay, will help the company to reduce the burden of its growing debts – said to have reached $6.1 billion.
However, while JBS was making its move for Seara, the Smithfield-Shuanghui deal was coming under close scrutiny from several quarters.
The Securities Exchange Commission in the US took emergency court action to freeze the assets of a Bangkok trader, who was reported to have made more than $3 million on the deal.
The SEC believes that the trader used insider information to bump up the deal and make rapid profits.
The SEC alleges that Badin Rungruangnavarat purchased thousands of out-of-the-money Smithfield call options and single-stock futures contracts from 21 May to 28 May in an account at Interactive Brokers LLC.
Rungruangnavarat allegedly made these purchases based on material, non-public information about the potential acquisition, and among his possible sources is a Facebook friend who is an associate director at an investment bank to a different company that was exploring an acquisition of Smithfield.
After profiting from his timely and aggressive trading, Rungruangnavarat sought to withdraw more than $3 million from his account on 3 June.
While the SEC was taking this action, doubts were starting to creep in over whether the Shuanghui-Smithfield deal could go ahead.
Concerns have been raised that the deal could conflict with regulations over foreign ownership of farm land in the US.
And now some members of Congress are also raising questions over the takeover.
Congressman J Randy Forbes, who represents Virginia where Smithfield has its headquarters said: “As what would be the largest takeover of a U.S. company by a Chinese buyer, the potential purchase of Smithfield Foods by Chinese meat processor Shuanghui International Holdings warrants robust analysis and review to ensure the safety and security of America’s citizens as well as the preservation of national economic interests, food safety, and environmental standards. I look forward to following that review process closely.”
Meanwhile, in Europe, the shake-up at the giant European meat processor VION Foods continues with a whole-scale change of management at its German operations including the departure of Norbert Barfuβ.
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