This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Chinese Firm Offers $7.1 Billion for Smithfield Foods

Stocks in this article: SFD

Updated to include analyst comments and additional data throughout

NEW YORK ( TheStreet) -- Smithfield Foods (SFD) has agreed to be taken over by Shuanghui International Holdings of China for $34 a share in cash, which values the popular meat marketer at $7.1 billion, when including debt.

Shuanghui International is the majority shareholder of China's largest meat processing company Henan Shuanghui Investment & Development Co. and seeks to take control of Smithfield's popular brands, which include its namesake Smithfield, Eckrich, Farmland, Armour and others.

Smithfield will allow Shuanghui International to meet the growing demand in China for pork by importing high-quality meat products from the United States, the company said in a statement. "The combination creates a company with an unmatched set of assets, products and geographic reach."

Smithfield's proposed acquisition comes at a 31% premium to the company's Tuesday closing price and represents a rare effort by a Chinese firm to take control of a U.S. company.

"This is a great transaction for all Smithfield stakeholders, as well as for American farmers and U.S. agriculture," C. Larry Pope, president and chief executive officer of Smithfield, said in a statement. "We do not anticipate any changes in how we do business operationally in the United States and throughout the world."

The acquisition of Smithfield will be financed by a combination of cash provided by Shuanghui, a rollover of existing Smithfield debt, as well as debt financing from Morgan Stanley and a syndicate of banks. There is no financing condition to the proposed $7.1 billion deal, Shuanghui said.

Goldman Sachs, a minority owner in Shuanghui with an over 5% stake in the China-based meats processor won't be underwriting the deal.

The deal is expected to close in the second half of 2013 and still faces key approvals from Smithfield shareholders, in addition to the Committee on Foreign Investment in the United States, which reviews takeovers of U.S.-based companies.

"We think the acquisition is likely to be approved, and could close as early as six weeks from now," Timothy Ramey, a D.A. Davidson & Co. analyst wrote in a note to clients.

Given Smithfield trading prices below Shuanghui's offer, Ramey wrote "we think the remaining upside to an uncontested $34 takeout price is an attractive return over perhaps a very short time horizon." The analyst rates shares a 'buy' with a $38 price target given the prospect of competing bids.

In a statement announcing Wednesday's deal, Smithfield emphasized the company's ability to export its high quality pork products to China and it's strategy to be a vertically intergrated pork processor and hog producer.

The merger, however, may raise some concerns about food safety given Shuanghui's previous health violations, recent outbreaks such as an avian flu virus.

"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 Long, chairman of Shuanghui, said in a statement. "We were especially attracted to Smithfield for its strong management team, leading brands and vertically integrated model."

Smithfield shares were up over 29% to $33.55 in Wednesday trading, slightly below Shuanghui's $34 offer price.

Barclays is financial advisor to Smithfield Foods, while Simpson Thacher & Bartlett and McGuireWoods are acting as legal advisors to the company. Morgan Stanley is financing Shuanghui's transaction, with Paul Hastings and Troutman Sanders acting as legal advisors.

-- Written by Antoine Gara in New York

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs