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Smithfield Foods Should Split Into 3 Units, Shareholder Says

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March 8 (Bloomberg) -- Smithfield Foods Inc., the world’s largest hog producer, should consider splitting up into three businesses after the shares underperformed some competitors, Continental Grain Co. said.

The three units would be hog production, fresh pork and packaged meats, and Smithfield’s international operations, Continental said in a letter yesterday. The company should also start paying a dividend, add “several” new directors to its board, and hire an investment bank to evaluate the proposals, said New York-based Continental, which holds a 5.8 percent stake in Smithfield and began investing in the company in 2007.

Smithfield will review the letter, the Smithfield, Virginia-based company said today in a statement.

“It’s time for Smithfield to get serious about creating shareholder value,” Continental said in the filing. “This is an exciting time in the world of food and agribusiness.”

Smithfield jumped 11 percent yesterday, its biggest gain in two years, after projecting growth in its packaged meat business. The company’s hog farms give Smithfield a competitive advantage and selling them would be a “big mistake,” Chief Executive Officer C. Larry Pope said yesterday in a response to a question on the company’s third-quarter earnings conference call.

Shareholder Value

Continental has “urged” Smithfield management and the board during the last seven years to focus on creating value for shareholders, who have seen “very little benefit” from the progress the company has made, according to the letter. During this time, Smithfield paid no cash dividends, while Tyson has cumulatively paid $429 million and Hormel has paid $728 million, Continental said.

Smithfield CEO Pope has received $36.7 million in total compensation during the past two years while Tyson CEO Donnie Smith has received $15.5 million, according to data compiled by Bloomberg.

Continental has two centuries of experience trading crops and investing in agriculture, according to its website. It was established in 1813 as a grain trading firm in Arlon, Belgium and moved its headquarters to New York in 1944.

Smithfield rose 4.5 percent to $25.79 in New York, the highest price since June 2008. The stock has climbed 15 percent in the past 12 months.

U.S. competitors Hormel Foods Corp. and Tyson Foods Inc. advanced 35 percent and 22 percent, respectively, according to data compiled by Bloomberg.

To contact the reporter on this story: Simon Casey in New York at scasey4@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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