Big investor urges Smithfield breakup over buyout

Starboard Value LP revealed a major stake in Smithfield Foods on Monday and urged the world’s largest pork producer to explore a breakup rather than go ahead with a planned US$4.7 billion takeover by Chinese meat company Shuanghui International.

The activist investor, now Smithfield’s biggest shareholder with a 5.7 per cent stake, said Smithfield might be worth “well in excess” of the $34 per share offered by Shuanghui if it split into hog production, pork and international units and shopped the businesses separately.

Smithfield shares rose 0.9 per cent to $33.09, well below the sum-of-the-parts valuation of $44 to $55 per share that Starboard laid out in a letter to Smithfield’s board, dated Monday (all figures US$).

The ho-hum market reaction on Monday could be a sign that investors think a breakup is unlikely.

“Continental Grain has made this case for several years and has not gotten anywhere with it,” said Moody’s analyst Brian Weddington, referring to the agricultural company that had pushed for a split-up. Continental sold its Smithfield shares after the Shuanghui deal was announced.

Continental was not immediately available to comment.

The planned purchase by Shuanghui would be the largest by a Chinese company of a U.S. firm to date.

The deal has some U.S. lawmakers worried about food safety implications for consumers. Senate agriculture committee chairwoman Debbie Stabenow (D-Michigan) has said federal agencies considering the merger “must take China’s and Shuanghui’s troubling track record on food safety into account.”

The companies insist the transaction was focused on exporting U.S. pork to China, not importing meat from China.

Lots of interest

Starboard said it believes there are numerous interested parties for each of the company’s divisions and that it “is looking to identify and engage in discussions with any third parties who may be interested in acquiring any of Smithfield’s operating units.”

It did not identify any possible bidders.

Thailand’s Charoen Pokphand Foods, controlled by billionaire Dhanin Chearavanont, considered bidding for Smithfield, it said last month. Other companies in the meat business mentioned by industry observers as possible suitors for parts of Smithfield include Hillshire Brands, Tyson Foods and Brazil’s JBS. None of the companies has said they were interested.

Run by Jeffrey Smith, New York-based Starboard has run campaigns in recent months at Office Depot, DSP Group and Tessera Technologies.

It was influential in Office Depot selling its Mexican business, has received support from other shareholders on its director slate at DSP Group, and succeeded in replacing the board at Tessera. It was less successful at AOL, where it lost a proxy fight last year.

Its stake in Smithfield catapults it past Vanguard Group Inc, which owned 4.7 per cent as of March 31, according to Thomson Reuters data.

A spokesman for Shuanghui declined to comment on the Starboard letter. Smithfield was not immediately available.

— Martinne Geller covers the packaged food and beverage sectors and consumer mergers and acquisitions for Reuters in New York.

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