Smithfield makes case against splitting company

by Meat&Poultry Staff
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SMITHFIELD, Va. – Officials at Smithfield Foods, Inc. made a case against splitting the company in an April 1 filing with the Securities and Exchange Commission. The filing, a series of slides Smithfield executives will show at meetings with investors, detailed the company's reasons against splitting the company into three independent companies.

Splitting the company would create supply issues and dependencies in key regions; reduce vertical control over its value chain to drive quality; and conflict with demands of many of Smithfield's large customers, according to the filing. Separation of the hog production and fresh pork segments would generate significant costs from balance sheet breakage, plant separation and business interruption.

In the near-term, giving up the Fresh Pork segment would hurt retailer relationships across categories and negatively impact export business, the company argued. Additionally, a split could create more competition in fresh pork and packaged meat.

"Major customers have reached out and suggested that Smithfield should not let go of its hog farms," according to the filing.

Smithfield's Pork Segment accounts for 71 percent of the company's sales. The Fresh Pork segment share was 33 percent of sales, while the Packaged Meat segment made up the rest of sales at 38 percent. Fresh pork generated $5.1 billion in sales, and Packaged Meat netted the company $6 billion in sales. The segment is growing at 2 percent to 3 percent annually, according to Smithfield.

Smithfield also revealed its strategic growth plan, which has two "pillars." The first pillar focuses on organic growth potential through higher investment in "direct to consumer marketing programs to build brand equity and grow sales"; establishing a culture of innovation to drive Packaged Meat volume and margins; emphasizing hog production by branding the farms to create a point of difference; and boosting capital investments.

The second pillar involves a diversified merger and acquisition strategy in packaged meats and value-added products.

The filing came in response to a shareholder's request to split the company. Continental Grain Co., which owns 6 percent of Smithfield's shares, sent a letter to the company and the SEC urging Smithfield to split into three independent companies in order raise shareholder value.

"It's time for Smithfield to get serious about creating shareholder value," the letter stated. "This is an exciting time in the world of food and agribusiness. There are many very positive trends and opportunities in the fields in which Smithfield operates. The three pieces of “New Smithfield” can achieve excellence and high returns in each of their focused market segments."

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