US security panel clears a Chinese takeover of Smithfield Foods
By MICHAEL J. DE LA MERCED
Smithfield Foods won national security clearance on Friday for its proposed $4.7 billion sale to a Chinese meat processor, overcoming one of the biggest obstacles to a takeover.
The approval by an important government committee came despite the deep-seated skepticism of a group of lawmakers, who professed concern over a Chinese company owning Smithfield, America’s biggest pork producer.
Analysts, however, are expecting Smithfield and its suitor, Shuanghui International, to prevail. The Committee on Foreign Investment in the United States, commonly known as Cfius (pronounced SIF-ee-us), has historically reviewed acquisitions involving key industries like energy and technology. But it has little precedent in examining them in the food sector.
Both companies have argued that their combination poses no danger of compromising American food safety standards. Indeed, they have contended that the goal is to export more Smithfield pork to China, satisfying rising demand for high-quality meat in that country.
“This transaction will create a leading global animal protein enterprise,” Zhijun Yang, Shuanghui’s chief executive, said in a statement on Friday. “Shuanghui International and Smithfield have a long and consistent track record of providing customers around the world with high-quality food, and we look forward to moving ahead together as one company.”
But the takeover, the largest ever of an American company by a Chinese counterpart, was almost certain to attract scrutiny.
Skeptics have repeatedly raised concerns about the possibility of compromised food safety standards. Members of the Senate Agriculture Committee held a hearing this summer reviewing whether foreign takeovers of American food producers were in the country’s best interests.
Senator Debbie Stabenow, Democrat of Michigan and chairwoman of the committee, said in a statement: “It remains unclear what factors the committee took into account in making its decision. We still do not know if the potential impact on American food security, the transfer of taxpayer-funded innovation to a foreign competitor, or China’s protectionist trade barriers were considered. It’s troubling that taxpayers have received no assurances that these critical issues have been taken into account in transferring control of one of America’s largest food producers to a Chinese competitor with a spotty record on food safety.”
Shuanghui has struggled with food quality controversies in the past. The company was at the center of a Chinese television investigation into sales of pork produced with clenbuterol, a food additive banned in the United States, the European Union and China because of health risks.
The company apologized and promised to revamp its safety regimen.
Though the Smithfield deal cleared the Cfius review, it must still pass muster with the company’s shareholders, who are scheduled to vote on Sept. 24. An activist investor who owns 5.7 percent of the pork producer, Starboard Value, disclosed recently that it would vote against the transaction. The hedge fund added that it had held talks with potential rival suitors who, it said, were willing to pay “substantially” more than Shuanghui’s $34-a-share cash bid.
Shares in Smithfield closed on Friday at $33.92, off 4 cents, suggesting that investors believe Shuanghui’s offer will succeed.
The Cfius approval came on the same day that Smithfield reported a 36 percent drop in first-quarter profit.
Net income was $39.5 million, or 27 cents a share, compared with $61.7 million, or 40 cents a share, in the period a year earlier. Revenue rose nearly 10 percent, to $3.4 billion.
