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"Today marks an exciting new chapter for both of our proud organizations as we formally begin a
partnership that will benefit our customers, employees, producers and partners. Together we look
forward to utilizing our individual strengths, including Shuanghui's extensive distribution network in
China and Smithfield's leading production and safety protocols, to provide safe, high-quality products
to consumers worldwide."
Wan Long, nicknamed China's "number one butcher" because of the large number of pigs the
company slaughtered, is the chairman of Shuanghui. As of May 2013, Zhijun Yang is the
managing director. The company employes over 60,000 people and is 30% employee owned.
In 2014, Shuanghui Group changed its name to WH Group Ltd.
Smithfield Foods:
Smithfield Foods is a $13 billion global food company and the world's largest pork processor
and hog producer. In the United States, the company is also the leader in numerous packaged
meats categories with popular brands including Smithfield, Eckrich, Farmland,
Armour, Cook's, Gwaltney, John Morrell, Kretschmar, Curly's, Carando,
Margherita, and Healthy Ones. Smithfield Foods is committed to providing good food in
a responsible way and maintains robust animal care, community involvement, employee
safety, environmental, and food safety and quality programs.
Headquartered in Smithfield, Virginia, it runs facilities in 26 U.S. states, including the largest
slaughterhouse and meat-processing plant in the world, located in Tar Heel, North Carolina.
It also has operations in Mexico and in 10 European countries, with a global total of over
46,000 employees.
Smithfield was founded in 1936 by Joseph W. Luter and his son as the Smithfield Packing
Company, now its largest subsidiary. It was able to grow as a result of its highly
industrialized pig production, raising the animals using a vertical integration system of
production that enables the company to control their development from conception to
packing. Thousands of livestock are housed together in barns with metal roofs, known as
concentrated animal feeding operations, where they are permanently confined.
The company raises around 15 million pigs a year and processes 27 million, producing over
six billion pounds of pork. It was the top pig slaughter operation in the United States in 2007,
at 114,300 pigs a day, and along with three other companies slaughtered 56% of the cattle
processed there until it sold its beef group in 2008. C. Larry Pope is the president and chief
executive officer.
Shuanghui International Holdings Limited/WH Group Limiteds Motive to Acquire:
The purpose of the tie-up is to export more of Smithfield's output by drawing on Smithfield's
operational excellence, particularly in quality standards and in branding in order to grow its
business and to feed rising demand in China, the world's biggest pork market, and not to
import Chinese meat into the U.S.
The proposed deal marked the effort by a Chinese company to strike a foreign acquisition
aimed at securing access to resources that can drive China's economythe world's second
largest. In the past, its focus has largely fallen on the mining and oil industries and less on
food.
If the environmental analysis is correct, the Shuanghui purchase of Smithfield is a harbinger
of things to come. Pressured by the catastrophic consequences of environmental degradation,
Chinese food producers will have no choice but set their sights abroad. No doubt, this will
present great business opportunities for many. The Smithfield deal will help China get what it
desperately needs: respect, through the Smithfield brand. Chinese officials have been stung
over and over by food safety scandals and were utterly embarrassed earlier this year when
dead pigs were found floating in rivers near Shanghai.
Smithfield Foods Motive to Get Acquired:
The purpose of the merger is to allow Smithfield to continue to grow as a leader in the meat
industry. Together with WH Group, Smithfield will export safe, high-quality products to
meet the growing demand of pork in China. The merger creates a company with an
unmatched set of assets, products and geographic reach that will benefit the entire Smithfield
Foods family. WH Groups distribution network in China will allow the American pork
industry, through Smithfield Foods, increased access to new markets and consumers.
Hog production will remain domestic.
The Deal:
Smithfield Foods $4.7 billion sale to Shuanghui International Holdings Ltd was
completed on 26th September 2013.
The closely watched transaction, valued at $7.1 billion including debt.
More than 96 percent of the votes cast at a special Smithfield shareholder meeting
were in favour of the acquisition. The votes cast represented 76 percent of
Smithfield's outstanding common shares.
Under the terms of the deal, Smithfield shareholders will receive $34 cash for each
share of Smithfield common stock they own, a 31% premium to the price at the time.
Another interesting aspect of the deal offered Smithfield protection through a reverse breakup fee. Under the terms of the merger agreement, Smithfield would receive US$275 million
from Shuanghui if the deal fell apart because it failed to secure certain U.S. or foreign
regulatory approvals, but this provision excluded CFIUS clearance. Specifically, because of
the intense political interest anticipated for this transaction and the fact that certain previous
acquisitions of U.S. companies by Chinese companies have been blocked by CFIUS,
Shuanghui was unwilling to agree to pay a reverse break-up fee should CFIUS block the
transaction. Shuanghuis refusal to bear CFIUS risk was an unusual aspect of the deal.
The deal was seen as a significant test of whether the CFIUS review process can be applied
fairly to Chinese investment in the U.S., in light of several high-profile rejections of past
deals. Passing this test not only paved the way for the two companies to consummate the
transaction, but should foster goodwill between China and the U.S. and may encourage more
companies and finance parties that the U.S. is increasingly welcome to Chinese investment.
CFIUSs approval thus represents an important turning point for the flow of investment
between China and the U.S.
Structure:
Bank of China and Morgan Stanley had combined to provide $7 billion of loans to finance
Shuanghui International's record deal to buy U.S. pork producer Smithfield Foods.
The total value of the Chinese company's record agreement was $7.1 billion, including net
debt.
Bank of China had provided up to $4 billion in financing to Shuanghui, in a five-year term
loan, and will syndicate the facility.
Morgan Stanley added $3 billion in a term loan as well, and will also sell down the amount.
The smallest of Chinas top four state-owned lenders, which has a longstanding relationship
with Shuanghuis Shenzhen-listed unit, Henan Shuanghui Investment & Development Co.,
secured the loan against Shuanghui Internationals assets and property, as well as all of
Smithfields shares. Separately, Morgan Stanley provided a $750 million revolving facility, a
$1.65 billion term loan, and a $1.5 billion bridge loan.
The $7 billion of financing went to the $4.9 billion in cash that Shuanghui agreed to pay
Smithfield, while rest went to refinancing Smithfield's debt.
Smithfield had $3.45 billion in gross debt outstanding, which included corporate and high
yield debt. The company had around $1 billion in cash and short term investments.
Financial
The following table shows selected consolidated financial data and other operational data for each of
the periods indicated. As a result of the Merger, all outstanding common stock of the Company during
the Predecessor Period was retired and all of the outstanding shares of Merger Sub were converted to
1,000 shares of common stock of the Company, no par value, and such shares are owned by a wholly
owned subsidiary of WH Group. There are no other shares of stock outstanding in the Company;
therefore we have not reported earnings per share.
References:
http://investors.smithfieldfoods.com/faq.cfm
http://www.reuters.com/article/2013/09/24/us-shuanghui-smithfield-voteidUSBRE98N0O320130924
http://articles.dailypress.com/2013-05-29/news/dp-shuanghui-buying-smithfield-foods20130529_1_smithfield-foods-smithfield-president-larry-pope
http://www.bloomberg.com/news/articles/2013-05-29/shuanghui-group-said-to-nearagreement-to-buy-smithfield-foods
http://www.newsmax.com/Finance/Companies/Smithfield-China-acquisitionproxy/2013/06/19/id/510715/
http://www.foodmanufacture.co.uk/Business-News/Cranswick-to-benefit-from-globalpig-merger-City