Shuanghui Agrees to Buy Smithfield Foods for $4.72 Billion

Shuanghui International Holdings Ltd., China’s biggest pork producer, agreed to acquire Smithfield Foods Inc. for about $4.72 billion to boost supplies for the nation that’s the biggest consumer of the meat.

Closely held Shuanghui, parent of Henan Shuanghui Investment & Development Co., will pay $34 a share for the Smithfield, Virginia-based producer, both companies said today in a statement. The offer is 31 percent more than yesterday’s closing share price.

China’s consumption of pork is rising with the expansion of its middle class while there questions are being asked about the safety of the country’s food supply. Smithfield’s livestock unit is the world’s largest hog producer, bringing about 15.8 million of the animals to market a year, according to the company’s website. It owns 460 farms and has contracts with 2,100 others across 12 U.S. states.

The takeover is valued at $7.1 billion including debt, which would make it the largest Chinese takeover of a U.S. company, according to data compiled by Bloomberg. The deal is likely to face scrutiny by the Committee on Foreign Investment in the U.S., said two people familiar with the situation who asked not to be identified because the information is private.

“On the one hand, pork is not directly an issue of national security, as defense or telecom might be,” Ken Goldman, a New York-based analyst for JPMorgan Chase & Co. who has a hold rating on the shares, said in a report today. “On the other hand, if CFIUS comes to believe that Chinese ownership of the U.S.’s largest hog farmer and pork supplier presents a food supply risk, then it may have a heightened concern.”

‘Growing Relationship’

Smithfield rose 24 percent to $32.31 at 9:36 a.m. before the start of regular trading in New York.

The takeover will be financed through a combination of cash, the rollover of existing Smithfield debt, and additional debt that has been committed by Morgan Stanley and a group of banks, according to the statement.

Smithfield’s existing management team will remain and C. Larry Pope will continue as president and chief executive officer. The deal is expected to close in the second half of 2013, pending approval from Smithfield shareholders and regulators.

Pope said on a conference call with analysts today that there had been a “growing relationship” between Smithfield and Shuanghui over the past four years.

Breakup Demands

“China is a large and growing market,” Pope said. “Asia as a whole is a tremendous and growing export opportunity for Smithfield.”

Smithfield shareholder Continental Grain Co. has been pushing for changes at the meat producer in the last few months. Continental Grain said in a letter in March that Smithfield should consider splitting into three businesses — one selling pork and packaged meats, another that runs hog farms, and a third based outside the U.S. — because the unprofitable hog- raising unit hurts returns. The shareholder’s request came after Smithfield’s stock trailed competitors Hormel Foods Corp. and Tyson Foods Inc.’s in the prior year.

Barclays Plc is Smithfield’s financial adviser and Simpson Thacher & Bartlett LLP and McGuireWoods LLP is its legal counsel on the deal. Morgan Stanley is the financial adviser for Shuanghui and Paul Hastings LLP and Troutman Sanders LLP are serving the company’s legal counsel.

–Editors: Simon Casey, Steven Frank

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Soybean Futures Cap Longest Rally in 14 Months on China Imports

Soybean futures capped the longest rally since March 2012 on signs of rising demand from China, the world’s largest buyer.

China bought 531,000 metric tons of U.S. soybeans in the week ended May 16 for delivery after Sept. 1, and an additional 115,000 tons of purchases overnight, government reports showed today. Sales last week for delivery before Sept. 1 rose nearly 12-fold to 183,480 tons, and inventories before this year’s harvest will drop to the lowest in nine years, U.S. Department of Agriculture data show. Exports of soybean meal since Oct. 1 are up 33 percent from the same period a year earlier.

Prices have jumped 7.2 percent in May, heading for the biggest monthly rally since July, when the worst U.S. drought since the 1930s eroded production and sent soybeans to a record $17.89 a bushel in September. While the USDA forecasts this year’s harvest will jump 12 percent to a record, farmers in the Midwest won’t collect most of those crops until October.

“China is buying, and that has put a strong bid into the futures market,” Jim Gerlach, the president of A/C Trading Co. in Fowler, Indiana, said in a telephone interview. “Meal exports are superb, and that’s a problem with U.S. soybean supplies falling.”

Soybean futures for July delivery gained 0.4 percent to close at $14.995 at 1:15 p.m. on the Chicago Board of Trade, after touching $15.4675, the highest since Nov. 2. Prices rose for a sixth straight session, the longest rally since March 2, 2012. Soybeans for delivery in November, after the harvest, climbed 0.3 percent to $12.43, after touching $12.4925, the highest since April 3.

China Imports

China’s soybean imports will start surging from this month and jump 17 percent in the season beginning Aug. 1 to 68 million tons, Hamburg-based researcher Oil World said May 21. U.S. reserves on Aug. 31 will shrink to 125 million bushels, the lowest since 2004, the USDA predicted on May 10. As a percentage of consumption, inventories will be the smallest since at least 1961.

Prices also rose on speculation that new rules from China to control capital inflows may end commodity-financing deals, forcing the country’s importers to buy futures to lock in purchases, Gerlach said. The National Business Daily reported yesterday some banks have stopped issuing letters of credit for copper importers after a government crackdown on hot-money flows.

“Talk that Chinese crushers are buying futures to lock in shipments because of the crackdown on financing is adding to the surge in prices today,” Gerlach said. “The only way to ration supply is to make it uneconomical to use the commodity.”

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29

To contact the editor responsible for this story: Steve Stroth at sstroth

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