U.S. News

Shuanghui Buying Smithfield Foods for About $4.72 Billion

Watch Berkshire
Smithfield Foods Inc. bacon sits on display for sale at a supermarket in Princeton, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images

In a marriage made in hog heaven, Smithfield Foods has agreed to be bought by Chinese meat producer Shuanghui Group for $4.72 billion. The deal will take the world's largest pork producer, with brands such as Armour, Farmland and its namesake, private.

Hong Kong-based Shuanghui owns a variety of global businesses that include food, logistics and flavoring products and is China's largest meat processing enterprise.

Shareholders of Smithfield will receive $34 per share under terms of the deal announced Wednesday — a 31 percent premium to the Smithfield, Va., company's closing stock price of $25.97 on Tuesday.

Both companies' boards have unanimously approved the transaction, which still needs approval from Smithfield's shareholders. The transaction may also be subject to review by the U.S.'s Committee on Foreign Investment.

(Read More: Food Supply Under Assault as Climate Heats Up)

The Politics of Pork
VIDEO2:4802:48
The Politics of Pork

The companies put the deal's total value at about $7.1 billion, including debt. Smithfield Foods has about 138.8 million outstanding shares, according to FactSet. Smithfield's stock will no longer be publicly traded once the deal closes.

Its shares surged $7.23, or 27.8 percent, to $33.20 in pre-market trading Wednesday.

The response from Washington wasn't as robust as the one from Wall Street.

Congressman J. Randy Forbes, a Democrat from Smithfield's home state of Virginia, issued a statement seeking "robust" review of the deal.

"As what would be the largest takeover of a U.S. company by a Chinese buyer, the potential purchase of Smithfield Foods by Chinese meat processor Shuanghui International Holdings 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. I look forward to following that review process closely," Forbes said.

Shuanghui has 13 facilities that produce more than 2.7 million tons of meat per year. Under the agreement, there will be no closures at Smithfield's facilities and locations, including its Smithfield, Va., headquarters, the companies said.

Smithfield's existing management team will remain in place and Shuanghui also will honor the collective bargaining agreements in place with Smithfield workers. The company has about 46,000 employees.

Shuanghui Buys Smithfield Foods in $7.1 Billion Deal
VIDEO2:4002:40
Shuanghui Buys Smithfield Foods in $7.1 Billion Deal

In a news release on Wednesday, Smithfield CEO Larry Pope called the move a "great transaction for all Smithfield stakeholders, as well as for American farmers and U.S. agriculture."

In recent months, Smithfield's second-largest shareholder, Continental Grain Co., has been pushing Smithfield to consider splitting itself up, saying it was time for the company to "get serious about creating shareholder value." Following a March letter from Continental Grain, Smithfield said it would review the suggestions "in due course." Representatives from Continental Grain did not immediate provide comment regarding Wednesday's news.

In its most recent quarter, in March reported its net income rose more than 3 percent, helped by gains in hog production, its international business and its packaged meats such as deli meats, bacon, sausage, and hot dogs—a large growth area for the company.

Still pork producers like Smithfield have been caught in a tug of war with consumers. The company needs to raise prices to offset rising commodity costs, namely the corn it uses for feed. But consumers are still extremely sensitive to price changes in the current economy. By raising prices, Smithfield risks cutting into its sales should consumers cut back or buy cheaper meats, such as chicken.

Berkshire Hathaway Live Event