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Smithfield Foods - Shuanghui International: Where's The Beef?

Peter Fuhrman profile picture
Peter Fuhrman

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It is, if voluminous press reports are to be believed, the biggest story, the biggest deal, ever in China-U.S. business history. I'm talking about the announced takeover of America's largest pork company, Smithfield Foods (NYSE:SFD), by a company called Shuanghui International. The deal, it is said in dozens of media reports, opens the China market to U.S. pork and will transform China's largest pork producer into a global giant selling Smithfield's products alongside its own in China, while utilizing the American company's more advanced methods for pork rearing and slaughtering.

One problem. A Chinese company isn't buying Smithfield. A shell company based in Cayman Islands is. Instead of a story about "China buying up the world", this turns out to be a story of a precarious leveraged buyout deal ("LBO") cooked up by some large global private equity firms looking to borrow their way to a fortune.

The media, along with misstating the facts, are also missing the larger story here. The proposed Smithfield takeover is the latest iteration in the "take private" mania now seizing so many of the PE firms active in China. (See blog posts here, here, here and here.) With China's own capital markets in crisis and PE investment there at a standstill, the PE firms have turned their attention, however illogically, to finding "undervalued assets" with a China angle on the U.S. stock market. They then attempt an LBO, with the consent of existing management, and with the questionable premise the company will relist or be sold later in China or Hong Kong. The Smithfield deal is the biggest - and perhaps also the riskiest - one so far.

This shell that is buying Smithfield has no legal or operational connection to Henan Shuanghui Investment & Development (from here on, "Shuanghui China") , the Chinese

This article was written by

Peter Fuhrman profile picture
Chairman, Founder and Chief Executive Officer at China First Capital (www.chinafirstcapital.com) , a China-based international investment bank and advisory firm for capital markets and M&A transactions. China First Capital was established in 2007 and has its headquarters in Shenzhen, China. It serves a distinguished group of clients, including industry leaders in China, both private sector companies and SOEs as well as global corporations actively expanding within China. Peter's insights and analysis on China, its capital markets and private equity industry are often featured in international media including The Wall Street Journal, Financial Times, The Economist, New York Times, Washington Post, Bloomberg, China Daily. Peter is an occasional columnist for three prominent Chinese-language business publications, 21st Century Herald, Caijing and Forbes China. For up-to--date commentary and analysis, visit: www.chinafirstcapital.com/blog Linkedin profile: cn.linkedin.com/in/peterfuhrman Founding China First Capital is the fulfillment of a deeply-held ambition nurtured for 30 years. "I first came to China in 1981, as one of the earlier American graduate students in China. I left China after school. But, throughout, I never lost sight of the goal to return to China and start a business that would contribute meaningfully to the country’s revival and prosperity."

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Comments (9)

Peter Fuhrman profile picture
Thanks, Sam. But, again, I suggest you focus on the content of the article and so eliminate the mistaken idea this deal has anything to do with China, with China buying assets in the US. Shuanghui International is a company controlled by international PE firms, not Shuanghui Development in China. This is an LBO, being done by PE firms.
Peter Fuhrman profile picture
Sam, you don't understand what's happening so you're just wasting brain cells, and space here. Read again my post, do your own research. Shuanghui Development has nothing to do with this Smithfield takeover. There is, thus, no CSRC approval. Again, reading will set you free.
Sam Liu profile picture
Dear Author:

I perused the article again. Ok, it's a shuffling of cards around.

What is new there?

There is a point though of providing incentives for China to continue to "invest" in rather losing value USA treasuries.

That is how I view these sort of (blocked) transactions.

Do you recall when Heckmann purchased Chinese Water & Drinks ... odd?

Or Best Buy purchased Five Star or rather what didn't happen afterwards ...

Admittedly, your knowledge or perspective of these matters probably is much more sophisticated and intellectual than I can ever grasp.

I deeply apologize for my simple thinking!
Sam Liu profile picture
And by the way, good luck with your endeavors Peter.

Don't forget about the people.

wow... this deal might not get approved by CSRC now after all the fishy details appear on Chinese baidu/renren sites.
powerduck, I think one of the author's points is that since Shuanghui Intl is a Caymans holding company, they won't need CSRC approval.
Sam Liu profile picture
Do you recall when Coca-Cola's bid for Huiyuan Juice, another Caymen Island entity was struck down.

Also the Tengzhong Heavy Industrial Machinery company another Caymen Island entity, wanting to buy GM's Hummer.
Sam Liu profile picture
So Shuanghui International doesn't pay Cn taxes!

What's new?
Sam Liu profile picture

At least 18 companies, including Nike, Microsoft and Apple, are stashing profits in offshore tax havens likely in a bid to avoid paying taxes, according to a new report from the Citizens for Tax Justice, a left-leaning research group. If the companies brought that money home, they would pay combined more than $92 billion in U.S. taxes, the report found.

“It’s misguided to say it’s some unique thing that Apple has created," said Matthew Gardner, the executive director of the Institute on Taxation and Economic Policy, a research partner of CTJ. "A lot of big companies are very likely doing it.”
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