A major holder in Smithfield Foods Inc. on Monday urged the hog producer to reconsider its pending $7.1 billion cash and assumed debt sale to Shuanghui International Holdings Ltd., arguing the company's shareholders would be better served if the target sold itself in pieces.
New York-based Starboard Value LP, owner of 5.7% of Smithfield shares, in a letter to management said the company could be worth as much as $55 per share in a breakup, a significant premium to the company's $34 per share deal with Shuanghui.
The Smithfield, Va.-based hog company, which has businesses including hog production, pork products and international sales, agreed last month to a deal with Shuanghui.
Starboard managing member Jeffrey C. Smith said in his letter to management that "there are numerous interested parties" for each of the company's operating divisions, saying "a piece-by-piece sale of the company's businesses could result in greater value" than the Shuanghui offer. "Our analysis indicated that a separation of these businesses was entirely feasible and could be accomplished without significant tax leakage," Smith wrote.
Smithfield as part of its merger agreement with Shuanghui is prohibited from seeking superior offers or from contacting third parties. Smith said that in light of this limitation, Starboard "is seeking to identify and connect any strategic or financial buyers for the company's individual business units to determine if it would be possible to structure a sum-of-the-parts transaction that could deliver greater value for shareholders," saying the company is hopeful the effort leads to a superior proposal.
The Starboard proposal is similar to demands made by shareholders including Continental Grain Co. prior to the merger announcement. Continental in March had urged Smithfield to split its hog, processing and international businesses to boost returns, but the company appears to be on board with the Smithfield deal.
Starboard said it believes that each of Smithfield's divisions can survive on its own, and questioned whether the company's board gave sufficient consideration to a breakup. The firm said it is not necessarily opposed to the Shuanghui bid, but rather wants other options more fully explored.
"We would be remiss ... to let an opportunity slip by to determine whether the company could realize even greater value for shareholders," Smith wrote. "We believe our involvement will be welcomed and supported by the numerous Smithfield investors who, like us, recognize the additional value that the company's assets have over and above the current offer."
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