CDH, Goldman-backed Chinese pork producer bids for Smithfield

It is further evidence of Chinese interest in securing high quality food sources - as well as the technology and processes used to produce them - to meet the needs of a population that is increasingly wealthy but also wary of domestic products. The investment also fits in with the broader objective of establishing leading Chinese companies as diversified international players.

Shuanghui, China's leading meat processor is offering to pay $34.00 per share for all outstanding shares in Smithfield, which represents a 31% premium over the company's May 28 closing price. The transaction will be financed through a combination of cash provided by Shuanghui, rollover of existing Smithfield debt, as well as debt financing provided by Morgan Stanley and a syndicate of banks.

"The acquisition provides Smithfield the opportunity to expand its offering of products to China through Shuanghui's distribution network" Wan Long, chairman of Shuanghui, said in a statement. "Shuanghui will gain access to high-quality, competitively-priced and safe US products, as well as Smithfield's best practices and operational expertise. We were especially attracted to Smithfield for its strong management team, leading brands and vertically integrated model."

Smithfield is the world's largest pork processor and hog producer - with a global herd of 1.09 million sows - as well as being the US market leader across numerous packaged meat categories.

Shuanghui and its subsidiaries control China's largest meat processing enterprise, Henan Shuanghui Investment & Development, which is listed on the Shenzhen Stock Exchange. The company produces more than 2.7 million tons of meat per year with facilities in 13 provinces.

CDH and Goldman first invested in Shuanghui in 2006, committing $250 million to the parent group, which gave them an approximately 35% indirect interest in Henan Shuanghui. The following year CDH and Goldman restructured their holding - reducing their interest in Henan Shuanghui to 15% - and investors including Temasek Holdings and New Horizon came in. Goldman was said to have divested part of its interest to CDH in 2009.

According to Shuanghui's 2012 annual report, CDH owns 33.7% of Shuanghui International, while Goldman, New Horizon and Temasek have 5.18%, 4.15% and 2.76%, respectively. Entities controlled by Shuanghui International own 73.16% of Shenzhen-listed Henan Shuanghui.

The Smithfield deal is expected to close in the second half of 2013, pending approval by numerous parties, including the US Committee on Foreign Investment in the US (CFIUS).

While CFIUS will certainly come under regulatory and political scrutiny - and one member of Congress has already expressed concerns about food safety, citing a tainted meat scandal that embroiled Shuanghui two years ago. However, the nature of the products and the fact that the Chinese company has no US operations might make the deal difficult to oppose on national security or antitrust grounds.

Smithfield is being advised by Barclays, Simpson Thacher and McGuireWoods, while Morgan Stanley, Paul Hastings and Troutman Sanders are working with Shuanghui.

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• Topics
• Buyouts
• Consumer
• Greater China
• North America
• M&A
• Consumer
• Goldman Sachs
• CDH Investments Management
• New Horizon Capital
• Temasek Holdings
• China
• USA