China group pips CP, Brazil firm to hog producer

Charoen Pokphand Foods and Brazil-based JBS SA were preparing bids for US company Smithfield Foods before it agreed to a US$4.72-billion (Bt142 billion) takeover by China’s Shuanghui International Holdings, people familiar with the matter told Bloomberg. 

CPF advised the Stock Exchange of Thailand that it was aware of Wednesday’s Bloomberg report on the Shuanghui-Smithfield merger agreement and that CPF was also mentioned in the report. 

However, CPF said it could not provide any more information on the matter because of a non-disclosure agreement, which is usual for this type of transaction.

According to the report by Bloomberg, under the terms of its agreement with Shuanghui, Smithfield has 30 days to continue talks with CPF and JBS, a food-processing company based in Sao Paulo, said one of the sources. While Smithfield, a meat producer based in the US state of Virginia, cannot actively seek better offers, it can respond to unsolicited bids that are superior to Shuanghui’s, that source said. 

If Smithfield were to try to reach a deal with CPF and JBS after the 30 days, said another person familiar with the matter, it would have to pay a higher fee to break off the Shuanghui deal. 

The successful suitor for Smithfield would gain control of the world’s largest hog producer, which raises about 15.8 million of the animals a year, according to the corporate website. 

Chief executive officer Larry Pope confirmed that his company agreed to a limited “go-shop” period as part of its deal with Shuanghui. He declined to elaborate or comment on other bidders. 

“I can’t comment on that – I can only direct you to our merger agreement,” said Pope, who would continue as CEO and president of Smithfield under Shuanghui’s ownership. 

Smithfield stock rose 28 per cent to $33.35 in New York yesterday. 

Smithfield can provide detailed financial data and negotiate deal terms with CPF and JBS for the next 30 days, said one of the sources, and would pay Shuanghui a break-up fee of $75 million, smaller than a typical charge for a deal this size. That fee would jump to $175 million if a deal were reached with CPF, JBS or any other bidder after 30 days, the source said. 

Shuanghui has also agreed to a break-up fee if it cannot complete the deal because of financing or regulatory issues, said the source.

 It would not have to pay that fee if the deal were derailed by the Committee on Foreign Investment in the US. 

CPF had hired advisers and was lining up financing for an offer as of late last week, said one of the sources. 

Shuanghui and CPF are vying for access to Smithfield’s pork supply as rising incomes in Asia mean more shoppers can afford meat. 

Buying Smithfield may also help the winning bidder ease Asian consumers’ concerns about food quality after a safety scare this year in China, the world’s largest consumer of meat. Shanghai cracked down on distributors after the discovery of thousands of dead pigs in the city’s main waterway in March. 

US pork exports to China last year were up more than sevenfold since 2003, according to data from the US Meat Export Federation. Shipments of the meat to China accounted for almost one-fifth of total US pork exports last year. 

Closely held Shuanghui, which owns Chinese meat processor Henan Shuanghui Investment and Development Co, agreed to pay $34 a share in cash for Smithfield, according to a statement. 

The deal values Smithfield at about $7.1 billion including debt, making it the largest for a meat producer and the biggest Chinese takeover of a US company, according to data compiled by Bloomberg.