China's Grab of US Hogs Stokes Interest on Hill
China's largest acquisition to date of a U.S. company, Smithfield Foods, is raising among market watchers who question China's interest in taking possession of one of America's largest food producers.
The deal drew the attention of a congressman from Smithfield's home state, Rep. Randy Forbes, (R.-Va.), who said he plans to follow the deal for the world's biggest pork producer "closely."
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Forbes said in a statement Wednesday that the agreement warrants "robust analysis and review to ensure the safety and security of America's citizens as well as the preservation of national economic interests, food safety, and environmental standards."
Smithfield Foods announced Wednesday that it entered into a definitive merger agreement to be bought by Shuanghui International, the majority shareholder of Henan Shuanghui Investment & Development, the largest meat-processing company in China by market capitalization. Shuanghui trades on the Shenzhen stock exchange.
The $4.72 billion deal would take Smithfield private. The company produces brands under the names of Armour, Farmland and Smithfield. Both companies' boards have approved the pact, though it still requires the go-ahead from Smithfield shareholders. It also must pass muster with the U.S.'s Committee on Foreign Investment.
Shares of Smithfield leaped more than 28 percent on Wednesday to $33.35. (For the latest stock price, click here.)
Food produced in the United States has a cachet among consumers in China, but that hasn't stopped deal-watchers from wondering whether Shuanghui's intention is to own production in the U.S., or merely to acquire the expertise of Smithfield.
Suspicion of China's motives for foreign acquisitions has abounded in the United States, Canada and Europe, all of which have seen the world's second-largest economy use its vast capital to own, or attempt to own, production of everything from fertilizer to oil to wine.
The deal "would set the stage for China to acquire pork here," said Mark Schultz, chief analyst at Northstar Commodity Investment, Minneapolis, adding that feed for hogs is less expensive in the United States than it is in China. "You can buy corn here cheaper than you can in China. You can buy soybeans cheaper."
Schultz compared the move to China's work to secure agricultural crop guarantees out of South America and elsewhere.
"That said, you can buy pork here whether they own Smithfield or not," he added.
'Business as Usual'
In a statement, Smithfield CEO Larry Pope said, "It will be business as usual—only better—at Smithfield. We do not anticipate any changes in how we do business operationally in the United States and throughout the world. We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality. With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui."
China's total meat consumption comes in at about 70 million tons annually, compared with 33 million for the United States, Schultz said. The two nations were roughly even in consumption in 1990, at 26 million tons each.
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China consumes roughly half the pork produced in the world, Schultz said.
"I think people have a hard time getting their heads around just how much that country has grown in the last 10 years," he said. "For them, food security comes first."