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China’s Shuanghui International to acquire Smithfield Foods for $4.7bn

The deal, which would be the largest Chinese purchase, has raised concerns among US politicians.

Shuanghui International Holdings has signed an agreement to acquire world's leading hog manufacturer Smithfield Foods Inc. for $4.7bn, a deal that would be the largest Chinese purchase of a US consumer brand.

This deal, however, has raised concerns among US politicians as the Chinese firm in 2011 was implicated in a food safety scandal, in which was it was allegedly accused of feeding clenbuterol hydrochloride, a dangerous additive, to pigs meant for consumers.

The transaction will be stringently scrutinised by the Committee on Foreign Investment in the United States (CFIUS), a committee that reviews national security risks.

Shuanghui, which is partly owned by an investment firm operated by Goldman Sachs, is the largest pork producer in China.

Pork consumption has steadily been increasing in China – according to Northstar Commodity Investment, in fiscal 2012, the per-capita pork consumption was 86 pounds, compared to 70 pounds in 2002, while in the US, the consumption declined from 66 pounds in 2002 to 58 pounds in 2012, reports The Guardian.

The takeover would put Smithfield Food’s total enterprise value at $7.1bn, including debt.

According to the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Shuanghui will purchase all of the outstanding shares of Smithfield for $34.00 per share in cash.

C. Larry Pope, president and chief executive officer of Smithfield, said:  "We have established Smithfield as the world's leading and most trusted vertically integrated pork processor and hog producer, and are excited that Shuanghui recognizes our best-in-class operations, our outstanding food safety practices and our 46,000 hard-working and dedicated employees.”

“It will be business as usual — only better — at Smithfield. We do not anticipate any changes in how we do business operationally in the United States and throughout the world. We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality. With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui," Pope added.

Allaying concerns, Pope clarified that the transaction was about exporting US products to China and would not impact either the company's management or employees.

Wan Long, chairman of Shuanghui, said: “Smithfield is a leader in our industry and together we will be able to meet the growing demand in China for pork by importing high-quality meat products from the United States, while continuing to serve markets in the United States and around the world. The combination creates a company with an unmatched set of assets, products and geographic reach." 

The transaction is expected to complete in the second half of 2013, following approvals from Smithfield's shareholders and regulatory authorities.