Hedge fund to vote against Smithfield takeover
Sept. 3, 2013
by Erica Shaffer
NEW YORK – A Smithfield Foods Inc. shareholder plans to vote against a proposed acquisition by Hong Kong-based Shuanghui International Holdings Limited, saying it is organizing an alternative bid for the world's largest pork processor, according to news reports.
Starboard Value LP, a New York hedge fund, announced its plans to vote against the deal in a letter to Smithfield shareholders from Jeffrey Smith, CEO. Starboard owns a 5.7 percent stake in Smithfield, making it one of the processor's larger investors. Smithfield declined to comment.
In July, Starboard announced the company entered into an agreement with Moelis & Company and BDA Advisors Inc. to explore alternatives the Shuanghui proposal.
Smith wrote: “We are pleased to report at this juncture that we have received non-binding written indications of interest from third parties, based on publicly available information, for each of Smithfield's assets, which in the aggregate imply a total value for Smithfield at a price substantially in excess of the $34 cash deal with Shuanghui.”
Shuanghui's proposal of the Smithfield, Va.-based pork processor is worth approximately $7.1 billion, including assumption of debt. Under the deal, Shuanghui will acquire all of Smithfield’s outstanding shares for $34 per share in cash, which is a 31 percent premium to Smithfield’s closing stock price of $25.97 on May 28.
Smith argued for a piece-by-piece sale of the company in June. Starboard estimated the "sum of the parts" value of Smithfield between $9 billion and $10.8 billion after taxes, or approximately $44 to $55 per share.
Smithfield's board may consider alternative offers that are submitted before shareholder approval of the Shuanghui proposal. A special meeting for the shareholder vote is scheduled for Sept. 24 in Richmond, Va. Smith said Starboard’s goal is for a third party to deliver a binding definitive agreement before the Nov. 29, 2013 deadline, and possibly before the special meeting.
Smith said Starboard would approve the Shuanghui deal if a superior proposal isn’t submitted. However, he added that the Shuanghui proposal undervalues Smithfield.
“As we have stated all along, Starboard is generally supportive of a sale of Smithfield,” Smith wrote. “However, as disclosed in the background section of the merger proxy, we believe the board failed to run a full and fair process to sell the company, in whole or in part, to ensure that shareholders realized the highest possible price. It is our belief that the proposed merger undervalues Smithfield and that with more time an alternative proposal to the board at a superior price for shareholders could be available.”