China’s Shuanghui International to buy Smithfield Foods for $7.1bn

Shuanghui International has entered into a definitive merger agreement to acquire US-based pork producer and processor Smithfield Foods in an all-cash deal valued at $7.1bn, including the assumption of net debt.

Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development, which is a leading meat processing company in China.

Under the terms of the agreement, Shuanghui will acquire all of the outstanding shares of Smithfield for $34 for each share of common stock.

The purchase price represents a premium of approximately 31% over Smithfield’s closing stock price on 28 May 2013, the last trading day prior to the announcement.

The deal will be financed through a combination of cash provided by Shuanghui, rollover of existing debt, and debt financing that has been committed by Morgan Stanley Senior Funding and a syndicate of banks.

Smithfield president and chief executive officer C. Larry Pope said that the deal will benefit Smithfield stakeholders, American farmers and US agriculture.

"With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui," Pope added.

Shuanghui chairman Wan Long said that the acquisition will allow the two companies to cater to the increasing demand in China for pork by importing meat products from the US, while continuing to serve markets in the US and globally.

"The combination creates a company with an unmatched set of assets, products and geographic reach."

"We look forward to working with Larry Pope and the many talented employees at Smithfield to grow the combined company as a leading global pork and processed meat producer with the same vision and values of providing high-quality and safe products to consumers," Wan added.

The deal will allow Smithfield to expand its presence to China through Shuanghui’s distribution network.

It will also allow Shuanghui to gain access to competitively-priced US products, as well as Smithfield’s best practices and operational expertise.

Barclays is serving as financial advisor to Smithfield, and Simpson Thacher & Bartlett and McGuireWoods are serving as legal counsel.

Morgan Stanley is acting as financial advisor to Shuanghui and Paul Hastings and Troutman Sanders are serving as legal counsel.

Following the completion of the deal, Smithfield Foods’ common stock will cease to be publicly traded and the company will operate as a wholly-owned independent subsidiary of Shuanghui International.

Pope will continue to serve as president and chief executive officer of Smithfield, and the management teams and workforces of Smithfield’s independent operating companies will remain in place.

In addition, there will be no closures at Smithfield’s facilities and locations, and the company’s headquarters will remain in Smithfield, Virginia.

The transaction is subject to approval by Smithfield’s shareholders, receipt of regulatory approvals and other customary closing conditions, and is expected to close in the second half of 2013.

Smithfield Foods is a $13bn global food company and leading pork processor and hog producer, employing 46,000 people.

In the US, the company is a supplier of packaged meats under brands including Smithfield, Eckrich, Farmland, Armour, Cook’s, Gwaltney, John Morrell, Kretschmar, Curly’s, Carando, Margherita, and Healthy Ones.