Shuanghui International

Shuanghui plans Hong Kong IPO after Smithfield deal

PUBLISHED : Tuesday, 16 July, 2013, 9:23pm
UPDATED : Tuesday, 16 July, 2013, 10:55pm

China’s Shuanghui International, which has agreed to buy US pork producer Smithfield Foods for US$4.7 billion (HK$36.46 billion), plans to list the combined company in Hong Kong after completing the takeover, people with knowledge of the matter said.

A Hong Kong IPO, valued at around US$4 billion, would allow the merged group to trade in a market that would place a higher valuation on the stock than the US or other exchanges, the sources said.

Hong Kong is a far bigger and more international stock market than Shenzhen, the Chinese exchange where Shuanghui’s main publicly traded subsidiary is listed.

A Hong Kong listing would also offer an ideal exit route for Shuanghui’s private equity investors, which includes Goldman Sachs and New Horizons, when they decide to sell their holdings, according to the people familiar with the matter.

New Horizons is the private equity firm founded by Winston Wen, the son of China’s ex-Premier Wen Jiabao.

Shuanghui could also use the proceeds to pay down some of the debt, people familiar said.

Bank of China and Morgan Stanley have combined to provide US$7 billion of loans to finance Shuanghui International’s record deal to buy the US pork producer.

The total value of the Chinese company’s record agreement was US$7.1 billion, including net debt.

The Smithfield deal has yet to close, the sources cautioned, and plans on what happens after the takeover would only be finalised upon the completion of the deal.

Hong Kong stock exchange rules require one year of ownership before a merged entity can list.

Shuanghui could not immediately be reached for comment.

Virginia-based Smithfield is the world’s biggest hog producer and a major exporter to China. Smithfield was under pressure from its top shareholder to break up the company when it announced, on May 30, the Shuanghui takeover offer.

US politicians immediately expressed concern about a Chinese company buying a Virginia food producer, though Shuanghui has promised to keep the Smithfield operation intact.

The deal, the largest ever by a Chinese company into the United States, would allow Shuanghui to directly sell Smithfield pork products across China to meet the country’s huge demand for the product.

Should Shuanghui complete the transaction, Smithfield would be de-listed from the New York Stock Exchange. The people familiar with the matter said the combined Smithfield-Shuanghui operation is being valued at around US$20 billion, meaning an IPO of around 20 per cent of the group would be worth around US$4 billion.

The main rationale behind a Hong Kong IPO is higher value the merged entity would command, the people familiar said.

Smithfield Foods trades at 12.7 times forward 12-month earnings, far below an average 16.8 times for the US-listed food products companies, according to data from Thomson Reuters StarMine. Similar companies in Hong Kong trade at 18.2 times, the data show.

Shuanghui International is an offshore holding company, whose main asset is a 73.26 per cent stake held directly and indirectly in Shenzhen-listed Henan Shuanghui Investment & Development, China’s largest meat processing company. Henan Shuanghui had a market value of US$15.3 billion based on Monday’s close.

Singapore state investor Temasek Holdings is also an investor in Shuanghui.

Shuanghui’s acquisition of Smithfield, which has more than 46,000 employees in 25 states and four countries, faces a few more steps before it becomes final, including the need to smooth over political concerns that it would hurt US food safety, and raise prices for American consumers.

Smithfield President and chief executive Larry Pope last week faced questions from US senators concerned about the long-term impact of the deal, and told them that the firm was not going to change.