Regulatory hurdles ahead for Shuanghui takeover

Analysts held mixed attitudes Thursday on whether the takeover of US meat firm Smithfield Foods Inc by Shuanghui International Holdings Ltd, China's largest meat processing company by output, will get approval from both of the relevant government authorities.

Smithfield Foods announced Wednesday that Shuanghui would spend $4.7 billion to buy the world's largest pork processor in the largest-ever overseas takeover by a Chinese food firm.

The deal has been approved by the boards of directors of the two companies, the US-based company said in a statement, but is still subject to review by China's Ministry of Commerce (MOC) and the US Committee on Foreign Investment.

Shenzhen-listed Shuanghui Investment and Development Co, the listed unit of Shuanghui International, saw its share price jump 8.73 percent to 42.86 yuan ($6.99) Thursday, as people believe the deal will enable Shuanghui to gain operational expertise and strong management from the US firm.

The deal is likely to win government approval because it has nothing to do with national security, concerns about which have hindered many Chinese takeovers of US firms in the past, especially for State-owned enterprises in the energy or technology sectors, said Wang Xiaoyue, an analyst with Beijing Orient Agribusiness Consultants.

With well-developed pig farming and pork processing industries, the US has a lower cost of pork than China, and it is already a big exporter of pork, so the deal raises no food security concerns, Ma Chuang, deputy secretary-general at the Chinese Association of Animal Science and Veterinary Medicine, told the Global Times Thursday.

US pork exports accounted for 27 percent of its total production in 2012, data from the US Meat Export Federation showed.

However, acquiring a pork processor would give China pricing power over grain, an important resource which is consumed in large amounts by pigs, so the US authority could reject the deal for reasons of food security, said Hong Tao, a professor with Beijing Technology and Business University.

Hong noted, however, that disapproval would run counter to the globalization trend.

Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation affiliated with MOFCOM, expressed his concern that the biggest risk of the deal is not protectionism by the US, but rather the legalization of "lean meat powder," a toxic additive in pig feed that can increase the output of lean meat.

The additive is prohibited in China but legal in the US. Meat from a Shuanghui subsidiary in China was found to contain the additive in 2011, which led to a lawsuit.

Mei said on his Sina Weibo that if the deal is completed, Shuanghui would have strong motivation to lobby the Chinese government to relax or even remove the ban on the additive, increasing the uncertainties of China's food safety.

Shuanghui told the Global Times in an e-mailed statement Thursday that both Shuanghui and Smithfield will do business in accordance with the laws of their native countries.

Neither MOC nor the Ministry of Agriculture answered questions regarding the deal faxed by the Global Times Thursday.

Wang said China's policies on the additive have become much stricter this year, and are unlikely to be affected by just one deal.

China on March 1 began requiring third-party testing to show US pork exported to China is free of the feed additive.

Wang said Shuanghui would ask Smithfield to export pork which does not contain the additive to China.

Smithfield has already made efforts to win over Chinese consumers by moving some of its plants off the banned additive.