SMITHFIELD, Va. – Starboard Value LP, an investor in Smithfield Foods Inc., approached buyout firms and meat processors – some of the processors being overseas-based – in efforts to nudge them into forming a bidding group to prevent a Chinese takeover, according to two sources familiar with the process in an Aug. 9 Bloomberg report.
One source, who is described as an activist investor, is challenging Hong Kong-based Shuanghui International Holdings Ltd., which agreed in May to buy Smithfield for $4.7 billion. Based on Starboard’s plan, the group would bid together and break up Smithfield after the takeover, the source said.
In a July regulatory filing, Smithfield Foods Inc. said that the board had already evaluated breaking up the company via carve-outs or spinoffs. It concluded, however, that “such restructuring alternatives were not in the best interests of Smithfield and its shareholders because, among other things, Smithfield’s hog production segment created efficiencies and synergies.”
Led by Jeffrey Smith, chief executive officer of Starboard, that company has argued over the past several months that Smithfield could secure a much higher price through a split. Starboard contacted meat processors, including Tyson Foods Inc., about a possible group transaction, one source claims. Starboard may end up presenting a proposal to Smithfield’s board within a month, the source added..
However, at this point it’s going to be difficult for Smithfield to turn around from this impending deal, said Michael Cook Sr., CEO of Memphis-based SouthernSun Asset Management LLC, which has a 3.5 percent stake in Smithfield.
Based on a July 12 regulatory filing, Starboard holds a 5.7 percent stake in Smithfield. Starboard also reportedly made overtures to potential financial investors, such as KKR & Co. and Blackstone Group LP (BX), the source said. To date, a consortium has not been finalized and a rival deal may not emerge, according to another source.
Shuanghui’s takeover proposal is currently under review by US regulators. It has agreed to buy Smithfield as China’s demand for pork and greater food-safety continues climbing upward. As reported earlier by MEAT&POULTRY, Shuanghui agreed to pay $34 a share for Smithfield. Shuanghui is paying about $7 billion, or 7.4 times Smithfield’s earnings before interest, taxes, depreciation and amortization, according to data compiled at the time of the bid. That compares with the $44 to $55 a share that Starboard has said Smithfield could get in a breakup. The firm said last month it hired Moelis & Co. and BDA Advisors Inc. to advise on the process with Smithfield.