Smithfield Foods Drops Paula Deen - TheStreet



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Smithfield Foods


is dropping Paula Deen after a deposition indicated the self-appointed queen of southern cooking had used racial slurs against a manager of her Georgia-based restaurants.

Smithfield Foods said Monday it was dropping Deen as a sponsor of the pork producer's products and that the company does not condone discriminatory language.

"Smithfield condemns the use of offensive and discriminatory language and behavior of any kind. Therefore, we are terminating our partnership with Paula Deen," the company said in an emailed statement from Keira Lombardo, a vice president of investor relations and corporate communications.

"Smithfield is determined to be an ethical food industry leader and it is important that our values and those of our spokespeople are properly aligned."

The company's move to distance itself comes as Deen has been forced to make multiple apologies to the public and other sponsors such as

The Food Network

have rescinded their relationship with the cooking guru.

"Inappropriate, hurtful language is totally, totally unacceptable," Deen said in a statement posed on


. "I've made plenty of mistakes along the way but I beg you, my children, my team, my fans, my partners - I beg for your forgiveness," Deen said.

Her firing from Smithfield also comes amid the meats producer's merger with Chinese foods giant

Shuanghui International Holdings

, in what would be the largest-ever Chinese acquisition of a U.S. firm.

While consensus is that U.S. regulators may support Shanghui's acquisition of Smithfield, which is subject to a review from the Committee on Foreign Investment in the United States (CFIUS) and the approval of shareholders, the merger faces some threats.

Some large Smithfield Foods shareholders have said they won't support the $34 a share deal, while turmoil in Chinese financial markets may present a new risk to the debt-financed merger effort.

Starboard Value

, a burgeoning activist hedge fund with a 5.7% stake in Smithfield said last week it opposes the company's sale and believes the integrated pork processor is worth more broken up in three parts.

Smithfield Foods is worth between $43.85 a share and $55.21 a share, according to Starboard, if the company's hog production, international and pork processing operations were split into three separate parts, the hedge fund argued in a June 17 letter to Smithfield's board of directors.

Smithfield Foods shares fell over 1% in Monday trading and closed at $32.81, below Shanghui's offer price.

Starboard is likely to have a significant annualized profit on its investment in Smithfield Foods even if Shuanghui relents with its $34 a share offer. The fund bought Smithfield Foods shares in March, when shares were about 25% below current levels.

A separation of Smithfield's three integrated foods units is feasible without "tax leakage" that is usually part of asset sales or spinoffs and the company's pork processing unit contains significant room for operational efficiency and margin growth, Starboard argued in its letter.

While the hedge fund appears to see reason for Smithfield to divest its hog and international businesses and retain its pork operations, Starboard also says several strategic acquirers are likely for each of Smithfield's divisions.

Earlier in June,

Continental Grain

, once a top shareholder in Smithfield Foods, said it would support the company's

planned sale


Prior to Smithfield's May 29 announcement of a takeover proposal, Continental Grain had sought to split up the vertically integrated pork manufacturer.

Continental Grain argued the sum of Smithfield's hog production unit and its meat processing and distribution operations internationally could be worth $40 a share.

According to press reports, Continental Grain's proposal to break apart Smithfield's vertically integrated operations was a catalyst for the company's eventual sale to Shuanghui, China's largest meats processor.

Smithfield will allow Shuanghui International to meet the growing demand in China for pork by importing high-quality meat products from the U.S., the company said in a statement when announcing the May 29 acquisition. "The combination creates a company with an unmatched set of assets, products and geographic reach."

The deal is expected to close in the second half of 2013 and still faces key approvals from Smithfield shareholders.

-- Written by Antoine Gara in New York

Follow @antoineGara