A major investor in Smithfield Foods Inc., the parent company Patrick Cudahy LLC, is trying to pressure the company to explore a breakup of its subsidiaries, rather than pursue a planned takeover by a Chinese meat producer.
In a letter to the Smithfield board, activist investment fund Starboard Value LP says it has taken a 5.7 percent stake in the world’s largest hog farmer and pork processor and urges the company to consider splitting up, rather than be acquired by Shuanghui International Holdings Ltd.
The proposed $4.7 billion deal would be the largest Chinese takeover of a U.S. company.
In the letter, Starboard argues that Smithfield would be worth more if it were broken into three parts – U.S. pork production, hog farming and international sales of fresh and packed meats – and then sold, rather than sold in total to the Chinese company.
“It is our belief that the divisions of Smithfield are easily separable and had the company explored a sale of these businesses in separate transactions, shareholders may have received far more value than the $34 per share consideration contemplated by the Proposed Merger. We question whether the Board gave sufficient consideration to a sale of the divisions in separate transactions, or whether it focused primarily on an all-cash transaction for the company as a whole, which we believe would entail a much more limited universe of potential buyers,” the Starboard letter stated. “We believe the sum of Smithfield’s parts in an alternative transaction structure is greater than the $34 cash consideration under the proposed merger. We believe the proposed merger significantly understates a conservative sum-of-the-parts valuation of Smithfield, which we estimate to be worth between $9 billion and $10.8 billion after tax leakage, or approximately $44 to $55 per share, representing an approximate 29-62 percent premium to the Shuanghui deal.”
