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Investor Wants Smithfield Sliced Up

18 June 2013

US & CHINA - A minority shareholder of Smithfield Foods Inc says a buyout offer of $7.1 billion, including debt, from China's Shuanghui International Holdings Ltd is far less than what the US pork processor could get if it were carved up and sold in chunks.

Starboard Value LP, which owns 5.7 per cent of outstanding Smithfield shares, sent a letter on Monday to the Virginia-based company's board of directors estimating that Smithfield is worth between $9 billion and $10.8 billion, or $44 to $55 a share.

Hong Kong-based Shuang-hui has offered $34 a share - $4.7 billion plus debt - for Smithfield, a 28 per cent premium to the US company's stock price on 28 May. That was the day before the two announced what would be the biggest US corporate takeover by a Chinese buyer. Each company's board has unanimously approved the deal, which is still subject to reviews by US regulators including on national-security grounds.

Smithfield shares closed at $33.08 on Monday on the New York Stock Exchange, up 28 cents. The lack of major movement up or down in price suggested investors mostly shrugged off the news.

Smithfield said it had received Starboard's letter and would review it.

The company said it was "committed to maximizing value for its shareholders" and that the Shuanghui deal provides them "significant, immediate and certain cash value for their investment".

A New York-based spokesman for Shuanghui declined to comment.

Starboard, in pushing Smithfield to reconsider the planned takeover by China's largest meat producer, argued that Smithfield would be more valuable if it were broken into three units - US pork production, hog farming, and international sales of fresh and packaged meats - and then sold.

In its letter to Smithfield's board and a filing on Monday with the US Securities and Exchange Commission, Starboard disclosed for the first time a holding in the company. The New York hedge-fund firm said it began acquiring shares of Smithfield in March and now, with a 5.7 per cent stake, is one of the company's largest single investors.

The letter from Starboard CEO Jeffrey Smith claims that Smithfield didn't seek bidders for individual pieces of the company, for which the investment firm believes potential buyers exist.

Having signed a definitive merger agreement with Shuanghui, Smithfield is barred from contacting potential rival bids. But Starboard offered to share its valuation research with the US company and take on the role of intermediary, saying it was "seeking to identify and connect any strategic or financial" bidders for the three parts of Smithfield it described and that it wants the company to consider offers that may emerge.

"We question whether the board gave sufficient consideration to a sale of the divisions in separate transactions, or whether it focused primarily on an all-cash transaction for the company as a whole, which we believe would entail a much more limited universe of potential buyers," Smith wrote in his 16-page letter explaining that the units are undervalued and could be managed independently of each other.

Starboard said its breakup call didn't amount to outright opposition to a takeover by Shuanghui.

"The purpose of our letter is not necessarily to come out in opposition to the proposed merger," it said, adding that the plan "goes a long way towards unlocking the intrinsic value of the company for shareholders". Starboard said it would be "remiss, however, to let an opportunity slip by to determine whether the company could realize even greater value for shareholders."

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