A favorite meal during Christmas is ham, and Americans this year will be eating more ham from a company based in China. One of the most famous pork companies in America, Smithfield Foods Inc., has just been bought by a Chinese company called Shuanghui International Holdings Limited.
Shuanghui International Holdings Limited announced that they have entered into a definitive merger agreement that values Smithfield at approximately USD7.1 billion, including the assumption of Smithfield's net debt. Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development Company, which is one of China's largest meat processing enterprises and China's largest publicly traded meat products company as measured by market capitalization.
"This is a great transaction for all Smithfield stakeholders, as well as for American farmers and U.S. agriculture," said C. Larry Pope, president and chief executive officer of Smithfield. "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."
But chatter on Twitter and other websites today shows some Americans are worried this may not be good for some stakeholders, especially consumers who know about China's struggle to enforce higher food safety standards.
An occasional practice in China is to inject water into meat to increase its weight and thus enhance the seller's profits. However the practice carries the risk of spoilage or contamination with chemicals or industrial waste. The Shanghai Industrial and Commercial Administration has in the past created awareness campaigns to help stop this type of practice.
And in another example of a localized case, the Hanyang Department for Industry and Commerce in Wuhan issued a reminder to consumers a few years ago warning them that some fresh-looking meat might contain methanol. The local Chinese media is often filled with both manufacturers and retailers who either store or sell their meat in unsanitary conditions.
Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Shuanghui will acquire all of the outstanding shares of Smithfield for USD34.00 per share in cash. The purchase price represents a premium of approximately 31% over Smithfield's closing stock price on May 28, 2013, the last trading day prior to today's announcement.
The transaction will be financed through a combination of cash provided by Shuanghui, rollover of existing Smithfield debt, as well as debt financing that has been committed by Morgan Stanley Senior Funding, Inc. and a syndicate of banks. There is no financing condition to this transaction.
Upon closing of the transaction, Smithfield's common stock will cease to be publicly traded. The company will be a wholly-owned independent subsidiary of Shuanghui International Holdings Limited, operating as Smithfield Foods. Pope will continue as president and chief executive officer of Smithfield, and the management teams and workforces of Smithfield's Independent Operating Companies will continue in place after the transaction.
Shuanghui will reportedly honor the collective bargaining agreements in place with Smithfield's represented employees, as well as existing wage and benefit packages for non-represented employees. Under the agreement, there will be no closures at Smithfield's facilities and locations, and Smithfield's existing management team will remain in place. Shuanghui has also pledged to maintain Smithfield's headquarters in Smithfield, Virginia.
But Chinese companies' relationships with unions in China is different than the relationships between unions and companies in the United States. Unions in China are often run by a local group affiliated with the Communist Party, and these unions often align themselves more with the companies than their counterparts in the Unites States, which often take a more combative relationship.
The closing of the transaction is subject to certain conditions, including, among others, approval by Smithfield's shareholders, the receipt of approval under applicable U.S. and specified foreign antitrust and anti-competition laws, The Committee on Foreign Investment in the United States and other customary closing conditions.
The transaction is expected to close in the second half of 2013.