Continental Grain presses for Smithfield split

by Keith Nunes
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OAKWOOD, Ga. – Calling Smithfield Foods, Inc.’s response to its recommendation the company split into three independent businesses in order to maximize shareholder value “inadequate” and “unacceptable,” the Continental Grain Co. is continuing its effort to break-up the world’s largest pork processor.

In a filing with the US Securities and Exchange Commission, Continental Grain said if Smithfield Foods’ management team followed its recommendation, the company’s stock would achieve a value of $40 per share within three years. Smithfield’s stock closed at $25.92 per share on April 24 and had traded within a range of $17.55 per share to $27.33 per share during the past 52 weeks.

The recommendations made by Continental Grain include:

• Splitting into three companies by divesting Smithfield’s “underperforming and highly volatile” Hog Production and select European assets;

• Reinvesting the proceeds from asset sales for additional share repurchases;

• Instituting an annual dividend;

• Restructuring its packaged meats business to achieve profitability levels in line with industry peers;

• Adding three new members to the board “whose background and experience properly reflect the current business” and continuing to renew and strengthen the board annually;

• Improving management depth at key business units; and

• Creating greater alignment between management compensation and shareholder returns.

Smithfield Foods’ response to Continental Grain’s recommendation has been to promote the value it sees in its vertically integrated business model. In an investor presentation released shortly after it received Continental Grain’s first letter in early March recommending a break-up of the company, Smithfield Foods emphasized that its Hog Production business ensures the company has a consistent supply of traceable raw materials for its pork and packaged meats businesses. Executives argued that the vertical integration gives it a unique selling proposition in the marketplace, and they pointed out that “major customers have reached out and suggested Smithfield should not let go of its farms.”

With regards to its international investments, Smithfield said positive hog production fundamentals in Europe were fueling profitability from international hog operations. In addition, the company was seeing modest, but positive contributions from its international meat processing businesses, and the approval to export from Romania to the European Union should continue to impact profitability.

Continental Grain said it plans to file a definitive proxy statement with the SEC in an effort to solicit proxies in connection with Smithfield Foods’ annual meeting of stockholders.

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