Proposed Sale Of Smithfield To Chinese Company Has Some Critics Squealing, While Others Say It Will Bring Home The Bacon

by King & Spalding
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Smithfield Foods, Inc. announced that it had entered into a definitive merger agreement with Chinese holding company Shuanghui International Holdings Limited on May 29, 2013. Based in Virginia, Smithfield is the world's largest pork processor and hog producer. The company also sells packaged meats in the United States under a number of brand names. Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development, the largest meat processing enterprise in China. Shuanghui International will acquire all outstanding shares of Smithfield Foods and also will acquire Smithfield's debts. If the $4.7 billion deal goes through, it will be the largest acquisition of a U.S. consumer brand by a Chinese firm.

The impact that the merger would have on the Virginia economy is unclear at this point. Shuanghui has committed to keeping the headquarters of Smithfield in Virginia and to retaining Smithfield's management team and workforce. Many critics, however, remain skeptical that jobs will remain in the United States in the long term. Smithfield employs an estimated 3,800 people in Virginia, many of them in the town of Smithfield where the company was founded. On the other hand, Virginia officials have argued that the deal will actually help the local economy by encouraging exports to China. The market for pork has grown rapidly in China in the last 35 years. China consumed approximately 52 million tons of pork in 2012, compared to 10.4 million tons in the United States. Proponents of the deal hope that Smithfield will be able to focus on exports to China in order to spur growth in the company and the local economy as a whole.

Critics have voiced other concerns about the proposed sale to Shuanghui International. Shuanghui International has found itself at the center of controversy over food safety in recent years and was even forced to close a plant in China two years ago after feeding pigs at the facility a banned additive. In addition, the Wall Street Journal reports that at least one shareholder has gone to Smithfield's Board of Directors claiming that breaking the company into three parts and selling the parts would lead to a higher share price than the proposed deal with Shuanghui International.

The deal is currently under review by the Committee on Foreign Investment in the United States ("CFIUS"). CFIUS reviews foreign investments in U.S. companies or operations in order to assess whether the transactions pose national security risks. CFIUS members include the Departments of Justice, Homeland Security, Commerce, Defense, State and Energy; the Office of the United States Trade Representative ("USTR"); and the Office of Science and Technology Policy. On June 20, 2013, fifteen senators sent a letter to Treasury Secretary Jacob Lew asking that the Department of Agriculture and the Food and Drug Administration participate in the CFIUS review process. According to the letter, "[a]ny CFIUS review…should look beyond any direct impact on government agencies and operations to the broader issues of food security, food safety and biosecurity." Many experts, however, anticipate that food safety concerns will not be sufficient for CFIUS to deem the deal to be a threat to national security.

Shannon Doyle

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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