Smithfield urged to consider break-up
Investor says break-up value of pork producer would be worth more than Shuanghui's offer
Smithfield Foods, the pig producer that has agreed to a US$4.7 billion bid from Shuanghui International, was urged by activist investor Starboard Value to consider splitting itself up instead.
A break-up may value the world's largest pork producer at about US$44 to US$55 a share, the investor, which said it holds a 5.7 per cent stake in the company, wrote in a letter to Smithfield's board. Hong Kong-based Shuanghui agreed in May to pay US$34 a share for the company.
"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," Starboard chief executive Jeffrey Smith said in the letter.
Smithfield said in a statement that it will review the letter and reiterated its recommendation that shareholders accept Shuanghui's offer. The Chinese company's offer is good for Smithfield shareholders, investors and employees, said a spokesman for Shuanghui.
Asked if Shuanghui would consider raising the offer price, a spokesman told the Post that the company would not comment at this stage.
The US producer faced similar demands in March from shareholder Continental Grain as rising animal-feed costs made pig production unprofitable. Continental said in April that a break-up into three businesses would achieve a stock price of US$40 within three years. It subsequently backed the bid from Shuanghui and said it would exit its holding after the deal.
Shuanghui chairman Wan Long said on May 31 that the company might raise its offer to meet other bids if necessary. The transaction by China's top pork producer is valued at about US$7.1 billion including debt.
"Raising the offer for Smithfield would have to prolong the time for Shuanghui to recover costs," said James Feng, general manager at Soozhu.com, China's biggest independent pig researcher. "A higher valuation of Smithfield may force Shuanghui to walk away."
While Smithfield cannot actively seek better offers, it can respond to unsolicited bids that are superior to Shuanghui's, said a person familiar with the matter.
Shuanghui may be the only remaining buyer for Smithfield after Charoen Pokphand Foods of Thailand and JBS of Brazil both walked from the sale process.
Starboard estimates the pre-tax value of the pig unit to be between US$1.9 billion and US$2.3 billion; the international operations to be between US$1.3 billion and US$1.5 billion; and the pork division should be worth between US$6.2 billion and US$7.9 billion.
Additional reporting by staff reporter