Smithfield CEO Feels Senate Heat Over Sale to China
U.S. senators sought answers from the head of Smithfield Foods on Wednesday about whether the proposed sale of the Virginia ham maker to China's largest pork producer could hurt U.S. food safety and raise prices for American consumers.
Although there was no indication Congress would intervene to block the deal, Senate Agriculture Committee Chairman Debbie Stabenow said she was worried that it would undermine the long-term competitiveness of the U.S. pork industry by exporting valuable production techniques to China.
"This is a precedent-setting case and we owe it to consumers, producers and workers to ensure we are asking the right questions and evaluating the long-term implications," the Democrat said at the hearing with Smithfield President and CEO Larry Pope.
(Read More: Pol: US Risks Losing Pork Industry to China)
Since more Chinese purchases of U.S. food companies appear to be likely, "at what point are we willing to say it's not in America's interest to have our food processing industry owned by another country," Stabenow told reporters after the hearing.
The sale of Smithfield Foods, the world's largest pork producer with more than 46,000 employees in 25 states and four countries, to Shuanghui International Holdings for $4.7 billion would be the biggest Chinese takeover of a U.S. company to date.
'Same Old Smithfield'
The Smithfield, Virginia-based company makes ham, sausage, bacon and other prepared meats under labels including Eckrich, Gwaltney and Armour. It has argued the deal is good for United States because it will boost pork exports, and good for China because it will help meet the country's growing demand for pork as hundreds of millions of Chinese move into the middle class.
But some have questioned what kind of production practices Shuanghui could bring to the United States, especially after revolting images this year of thousands of rotting pig carcasses floating down the Huangpu River that runs through Shanghai raised concerns about food safety practices in China.
Pope sought to assure the panel the company would be the "same old Smithfield" after the deal. "Nothing's going to change. This is going to be an American company. We will continue to operate like an American company ... Regardless of where the ownership is, this company is going to have to operate under the laws of the United States.
We're not operating under the laws of China," Pope said. Republican Senator Mike Johanns said he was skeptical that the deal would lead to China becoming a major pork producer because water shortages in that country make it difficult to grow enough grain.
But Johanns said the sale was galling to many members of Congress because if a U.S. company tried to buy a Chinese pork producer, the deal would be blocked.
"You know for a fact you could not do in China what they are doing here with Smithfield. Chinese regulators would laugh at you if you said, 'Well, I'll just buy Shuanghui,'" Johanns said.
'A Significant Shareholder'
Under questioning from Democrat Sherrod Brown, Pope acknowledged he would benefit significantly from the proposed sale, but declined to say how much he would gain.
"I don't have those numbers right here in right in front of me ... I certainly am a significant shareholder. I'm going to receive the $34 per share that every other shareholder is going to receive," plus additional compensation intended to keep the current management team in place for three years, he said.
A recent securities filing showed Pope could receive nearly $46.6 million in merger-related payments as part of the planned takeover. Other lawmakers expressed concern that China's huge demand for pork could drive up prices in the United States. Pope said he did not expect that to happen.
Congress has no direct role in approving or blocking the transaction, but the hearing sheds light on issues facing the Committee on Foreign Investment in the United States, an inter-agency government panel that examines whether a foreign purchase of a U.S. company poses any national security risk.
Lawmakers also worried about the impact on the competitiveness of U.S. pork production if Shuanghui gains access to Smithfield's valuable technology and hog genetics.
Stabenow noted that Shuanghui is offering to pay a 30 percent premium for Smithfield even though the American company has been struggling to make a profit.
"That, to me, raises questions about the economic motivations of the purchase. Is Shuanghui focused on acquiring Smithfield's technology, which was developed with considerable assistance by U.S. taxpayers?" Stabenow asked.
Pope said he expected the deal to "drive growth and expansion not only for our growers but for the entire U.S. pork industry." He said China's huge protein deficit made it unlikely it would become a significant pork exporter.
"China is responsible for 50 percent of the world's pork consumption and their demand is still growing, whereas pork demand in the U.S. has been declining for almost 15 years," Pope told the agriculture panel.