Smithfield Bid for Meat Business Prior to Shuanghui Deal
Smithfield Foods Inc. (SFD), the world’s largest hog producer, bid for a large packaged-meat business after it got an initial takeover offer from Shuanghui International Ltd. and before it agreed to be acquired by the Chinese company.
Smithfield’s offer was made March 25 and was rejected by the target on April 10, the U.S. company said yesterday in its proxy statement. Smithfield, which retained Barclays Plc to help evaluate the “potentially significant” deal, didn’t identify the business.
The U.S. pork producer had considered a purchase in the packaged-meat industry since January, and the proposed deal was discussed at an April 21 board meeting, the statement shows. Possible targets in the U.S. include Chicago-based Hillshire Brands Co. (HSH) and closely held Land O’Frost Inc., said Ken Goldman, an analyst at JPMorgan Chase & Co. in New York.
“There are few packaged meat companies of size in the U.S.,” Goldman said today in a note. “The fact that any large packaged meats business was being pursued should be read as a positive for a pure play such as Hillshire, as it suggests an attractive M&A environment.”
Mike Cummins, a Hillshire spokesman, said the company doesn’t comment on rumor or speculation. Voicemails seeking comment from Land O’Frost executives weren’t immediately returned.
The proxy statement also shows Smithfield received competing offers from two other foreign companies following the initial $30-a-share bid from Hong Kong-based Shuanghui and considered other options including breaking up the company and a sale to a private-equity firm. It agreed on May 29 to Shuanghui’s revised bid of $34-a-share.
Smithfield weighed the possibilities as the outlook for its fourth-quarter earnings weakened and after investor Continental Grain Co. said in a March letter the hog producer should be split up.
“The Smithfield board considered the acquisition of the packaged meats business to be potentially attractive, but was concerned about whether it would be possible to make the acquisition on terms that were financially favorable to Smithfield,” given its initial offer had been rejected, the company said in the statement. It was also concerned “whether it would be possible to achieve the synergies necessary” to make such a deal “financially successful,” Smithfield said.
The $4.7 billion agreed Shuanghui deal, if completed, will be the largest Chinese acquisition of a U.S. company. The March 7 letter from Continental Grain “probably accelerated” talks with Shuanghui that had started in late 2012, Smithfield Chief Executive Officer C. Larry Pope said in a May 29 interview.
Continental said April 25 its proposal to split Smithfield would achieve a stock price of $40 within three years. It subsequently backed the bid from Shuanghui and said it will exit its holding after the deal.
Shares of the Smithfield, Virginia-based company rose 0.3 percent to $33.11 at 12:25 p.m. in New York. It traded at $25.97 on March 28, the day before Shuanghui’s $34 bid was announced.
Thailand’s Charoen Pokphand Foods Pcl (CPF) and Brazil’s JBS SA (JBSS3) were preparing bids for Smithfield before the U.S. company agreed to the offer from China’s Shuanghui, people familiar with the matter said May 29.
Smithfield received a competing $30-a-share offer on April 26, from a publicly traded non-U.S. company it didn’t identify, that was later raised to $33.50 on May 3, it said in the proxy statement yesterday. Smithfield said the bid raised potential antitrust concerns in the U.S., and the bidder never signed a confidentiality agreement.
The second competing bidder, also a publicly traded non-U.S. company that wasn’t identified in the statement, initially approached Smithfield with a proposal that included it taking a minority stake of as much as 9.9 percent.
On May 8 it proposed a bid of $31 to $35 a share. It later offered $34 a share, before talks ended because the potential acquirer couldn’t announce a deal earlier than June 13, Smithfield said in the proxy statement.
The Shuanghui deal is expected to be completed in the second half subject to antitrust approvals including that of the Committee on Foreign Investment in the U.S.
Also disclosed in the proxy statement is the $275 million reverse termination fee payable by Shuanghui under certain conditions, including if the Chinese company fails to raise the required debt financing for the takeover.
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