Published June 17, 2013
Despite protests from a leading shareholder, China’s Shuanghui International is reportedly not planning to boost its $4.7 billion takeover of meat producer Smithfield Foods (SFD).
Meanwhile, Smithfield released a statement after Monday's closing bell reaffirming its recommendation for shareholders to approve the Shuanghui offer, which represents a 31% premium on the company's closing price the day before the bid emerged.
"The strategic combination with Shuanghui provides Smithfield shareholders with significant, immediate and certain cash value for their investment," the company said.
In a letter on Monday to Smithfield’s board of directors, the Starboard Fund argued the world’s largest meat producer could fetch as much as 62% more if it sells off its various business lines in pieces to strategic or financial buyers.
Smithfield said it considered "several different separation scenarios," but its board of directors is "pleased with the process it followed leading to this transaction."
While Starboard feels Smithfield could be valued at $55 a share, China’s Shuanghui will not boost its $34-a-share bid for Smithfield, Dealreporter reported on Monday afternoon.
“It is incumbent upon Starboard to fully explore whether strategic or financial buyers are interested in the company's operating divisions in order to confirm our belief that the sum of Smithfield's parts are indeed greater than its whole,” Starboard managing member Jeffrey Smith wrote in the extensive letter.
Starboard said it owns 5.7% of the Smithfield, Va.-based company's outstanding shares.
Even though the push by Starboard is relatively risk-free because the buyout is fully financed, if Smithfield shareholders rejected the deal and Shuanghui walked away, a source told Dealreporter that the company’s stock could tumble to about $26.
Sources also told the publication that carving Smithfield up into pieces carries significant execution risk due in part to tax implications.
While Smithfield’s stock rallied as high as $33.35 on Monday, it closed off its best levels at $33.08, or up 0.85% on the session.
If approved by shareholders and regulators, including the Committee on Foreign Investment in the United States, the takeover of Smithfield would be the largest ever of a U.S. target by a Chinese company.