The Deal: No CFIUS Strings Attached to Smithfield Deal

NEW YORK (The Deal) -- National security officials' approval of Shuanghui International Holdings' takeover of Smithfield Foods (SFD), granted late Friday, contained no mitigation conditions despite critics' warnings that the $7.1 billion deal could create U.S. food safety risks.

Some U.S. lawmakers and experts in international trade had criticized the takeover by China's Shuanghui as a possible threat to U.S. food safety because of China's poor track record in protecting its food supply. The called on CFIUS to either block the deal or include officials from the Department of Agriculture in the review to ensure that food safety here is not put at risk.

China has been bedeviled by instances of food safety problems and toothpaste tampering, including a 2007 scandal in which melamine-tainted pet food exported to North America killed thousands of pets. In March, thousands of dead pigs washed ashore in Shanghai.

Although executives from the two companies insist that the purpose of the deal is to export Smithfield products to China and consequently won't harm food safety here, some opponents predicted that Smithfield hogs will find their way back to the U.S. in the form of processed lunch meat and other products. The critics had called for CFIUS, a Treasury Department led government panel that investigates takeovers of U.S. assets by foreign buyers for national security threats, to spell out rules for examinations of Shuanghui facilities by U.S. inspectors and other safeguards.

Food safety conditions would have been a first, according to CFIUS experts. The panel typically addresses military, physical infrastructure and law enforcement issues posed by a foreign acquisition.

The lack of mitigation conditions surprised Kaye Scholer LLP partner Farhad Jalinous, who specializes in CFIUS reviews. But he noted that CFIUS rules prevent the committee from imposing mitigation conditions if the would-be terms are already addressed in U.S. law. "They must have come to the conclusion that existing law is enough," he said.

Shuanghui was represented in the CFIUS review by a Paul Hasting LLP team comprised of partners Scott Flicker, Charles Patrizia and Hamilton Loeb and associates Dana Stepnowsky and Ellen Holmes. Smithfield was represented by Simpson Thacher & Bartlett LLP partner Peter Thomas, associates Dave Shogren and Andrew Winerman and summer associates Nic Ridley and Adrienne Vollmer.

The companies' announcement did not address mitigation conditions, an omission that does not necessarily indicate that mitigation was not required. When China's Cnooc ( CEO) announced CFIUS approval of its acquisition of Canadian gas producer Nexen ( NXY) in March, it did not mention that the CFIUS barred it from exercising operational control of energy facilities Nexen owned in the U.S. portion of the Gulf of Mexico.

CFIUS experts picked up through the grapevine over recent days that mitigation was indeed absent from the Smithfield approval.

The transaction remains subject to Smithfield shareholder approval and other customary closing conditions. Smithfield's shareholders are scheduled to vote on the transaction at a special shareholders meeting on Sept. 24. Shuanghui International and Smithfield expect the transaction to close shortly thereafter.

-- Written by Bill McConnell In Washington

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