By Denny Thomas
HONG KONG, May 29 (Reuters) - China's ShuanghuiInternational agreed on Wednesday to buy Smithfield Foods for $4.7 billion in cash, in a deal that will increasethe flow of U.S.-made pork to the world's largest consumer ofthe meat.
The agreement comes after Smithfield's largest shareholderagitated for change at the company, including a call to break upthe Virginia-based pork producer.
The deal will be subject to review by the U.S. Committee onForeign Investment, Smithfield said in a statement, which willcome at a time of testy relations between the U.S and China onmatters of cross-border transactions.
China is also the third-largest market for U.S. pork - abrand of meat in high demand lately, as China suffers throughanother series of embarrassing food safety scandals, involvingeverything from rats to pigs.
The price of Shuanghui's offer is $34 per share, a 31percent premium to Smithfield's stock price. Shuanghui willassume $2.4 billion of Smithfield's debt
Shuanghui has promised to maintain Smithfield's operations,staff and management. The thrust of the deal is to send the U.S.made pork to China, a factor that one person familiar with thematter said would help during Shuanghui's CFIUS review.
Privately owned Shuanghui plans to fund the acquisitionusing debt, the person added, with both Chinese and foreignbanks providing loans.
Continental Grain Co, which owns a 5.8 percent stake inSmithfield Foods, has been agitating for change. Last month itsent management a letter, urging the company to break itself upinto three independent companies, to unlock shareholder value.
Continental, Smithfield's biggest shareholder, said in anApril presentation that Smithfield should split into threecompanies, use the proceeds to buy back shares, restructure itsbusiness, and institute a dividend in line with peers.
Food safety and environmental pollution are chronic problemsin China and public anxiety over cases of fake or toxic foodoften spreads quickly.
In March, more than 16,000 rotting pigs were found floatingin one of Shanghai's main water sources, triggering a publicoutcry. Over-crowding at pig farms was likely behind the die-offand their disposal in the Huangpu river.
The public security ministry said police had confiscatedmore than 15 tonnes of tainted pork in Anhui province, althoughas much as 60 tonnes had been sold in Anhui and Fujian provincessince mid-2012.
Chinese police broke a crime ring earlier this month thatpassed off more than $1 million in rat and small mammal meat asmutton.
According to Wednesday's statement, Shuanghui Internationalis the majority shareholder of Henan Shuanghui Investment &Development Co., which is China's largest meatprocessing enterprise and China's largest publicly traded meatproducts company as measured by market capitalization.
Barclays is the financial advisor to Smithfield andSimpson Thacher & Bartlett LLP and McGuireWoods LLP are servingas legal counsel. Morgan Stanley is financial advisor toShuanghui and Paul Hastings LLP and Troutman Sanders LLP areserving as legal counsel.
Barclays (BARC)
