Shuanghui to buy US pork producer

Acquisition by Chinese firm to help satisfy demand amid safety concerns

In what would be the biggest takeover of a US company by a Chinese buyer, Shuanghui International Holdings Ltd has agreed to pay $4.72 billion to acquire Smithfield Foods Inc, the world's leading pork producer, to meet growing demand for US-made pork.

The transaction, which also includes $2.38 billion in assumed debt, is China's largest cross-border deal since CNOOC Ltd paid $15.1 billion last year for Canadian oil and gas producer Nexen Ltd. It faces regulatory scrutiny because it would bring a major US business under foreign control.

The announcement on Wednesday came just over a week before the June 7-8 meeting in California between President Xi Jinping and his US counterpart, Barack Obama.

It also comes at a time when food safety, along with environmental pollution, is a concern in China, prompting the central government to crack down on some food producers. The country is the world's largest consumer of pork.

In a conference call with analysts after the deal was announced, Smithfield CEO C. Larry Pope characterized the transaction as "exporting America to the world" rather than as part of a strategy to import Chinese pork into the United States.

The companies had been in discussion for four years before reaching agreement, he said.

"We saw the opportunity," Pope said, but "pricing has always been an issue".

Smithfield stock will no longer be publicly traded once the deal closes, expected later this year.

Under the agreement, which requires the approval of Smithfield shareholders, Shuanghui will pay $34 for each Smithfield share. The offer represents a 31 percent premium to the shares' Tuesday closing price of $25.97.

Based on Smithfield's 138.8 million shares outstanding, the cash portion of the deal is worth $4.72 billion. The companies valued the deal, including assumed debt, at $7.1 billion, meaning the value of the debt is around $2.38 billion.

With annual revenue of $13 billion and more than 46,000 employees, Smithfield, based in a small Virginia town of the same name, has facilities in 26 US states, including the world's largest slaughterhouse and meat-processing plant, in North Carolina. It also has operations in Mexico and 10 European countries.

The company's brands include Smithfield ham, Farmland bacon and Healthy Ones lunch meats. It raises some 15 million pigs a year and processes 27 million, producing more than 2.7 billion kilograms of pork.

Shuanghui, based in Henan province, owns businesses in food production, logistics and flavorings.

The deal gives Shuanghui, which already is the majority shareholder in China's largest meat-processing enterprise, a major foothold in the US food industry.

Amid a fourfold increase in the nation's annual per-capita meat consumption, China became a net importer of pork in 2008, and now is the world's largest consumer of pork.

According to the Earth Policy Institute, an environmental organization, China has imported about 400,000 metric tons of pork annually in recent years, compared with a global pork trade of less than 7 million tons.

In the past decade, Chinese pork prices have more than doubled, contributing to a slowdown in consumption, according to Dutch financial services provider Rabobank.

In a statement to China Daily, the National Pork Producers Council, a Washington-based industry group, declined to comment directly on the Shuanghui-Smithfield deal. But it said the sale "does have the potential to increase US pork exports to China, which would benefit all US pork producers".

In the companies' announcement, Shuanghui Chairman Wan Long said: "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 proposed takeover is subject to approval by US regulators on antitrust and competition grounds as well as a review by the Committee on Foreign Investment in the United States.

The interagency committee, led by the Treasury Department, evaluates large or sensitive deals involving foreign investors that could affect US national security. CFIUS, as the panel is known, has previously rejected some proposed acquisitions by Chinese companies.

As the nation's chief regulator of meat products, both domestic and imported, the US Department of Agriculture will also have a say in the CFIUS review.