Shuanghui International Holdings Ltd., the Chinese company that agreed to pay $4.7 billion for Smithfield Foods Inc. (SFD), the world’s biggest hog producer, said China needs food-safety technology from overseas.
“Chinese food companies need to go outside to learn advanced technology and experiences on food safety,” Chairman Wan Long said in e-mailed responses to questions from Bloomberg. Smithfield has “strict food safety management and effective measures on environmental protection” as well as advanced technology and well-known brands, he said.
Acquiring Smithfield would give China’s biggest pork producer access to more advanced production technology as well as 460 farms that raise about 15.8 million hogs a year, according to Smithfield, Virginia-based Smithfield’s website. Valued at $7.1 billion including debt, the deal would be the largest for a meat producer and the biggest Chinese takeover of a U.S. company, according to data compiled by Bloomberg.
“Buying Smithfield will encourage Shuanghui and its Chinese rivals to compete for higher food production standards amid increasing concerns of China’s food safety issues,” Claire Wu, a Beijing-based analyst at Zero2IPO Group, a research firm focused on deals, said by telephone yesterday “The domestic food industry would benefit from such competition.”
While China’s consumption of pork is rising with the expansion of its middle class, the nation’s food industry has been wracked by scandals ranging from tainted milk to the illegal dumping of hogs in rivers.
Shuanghui apologized in March 2011 over illegal additives found in its meat and halted output after China Central Television reported that farmers in central Henan province fed an additive to their pigs and then sold them to a slaughterhouse owned by the group. The company subsequently pledged to step up quality control.
“Each country has its own standards” on feed additives used in hog raising, Wan said today.
Smithfield produces pork under American standards and will continue to do so in the future, he said. In China, Shuanghui will comply with Chinese standards, Wan said.
Shuanghui International is the Hong Kong-based holding parent of Henan Shuanghui Investment & Development Co., China’s biggest pork processor.
Smithfield accepted Shuanghui’s offer of $34-a-share on May 29, priced at a 31 percent premium to the close the day before, the companies said that day in a statement. The U.S. producer has 30 days to continue talks with possible buyers Charoen Pokphand Foods Pcl (CPF) and JBS SA (JBSS3), people familiar said.
Shuanghui International will fund the acquisition with its own cash and financing from a group of banks, Wan says, without naming any of them. The deal is subject to approval from Smithfield shareholders and regulators, and is expected to close in the second half.