Starboard Value will oppose sale at Sept. 24 meeting, trying to buy time to firm up rival offer

September 03, 2013|By Allison T. Williams, | 757-247-4535 | Daily Press

Starboard Value LP, a New York investment company that owns 5.7 percent of Smithfield Foods Inc., says it will vote against a Chinese buyer’s proposed takeover of the world’s largest pork producer this month.

In an open letter to Smithfield stockholders, Starboard said it is working with several third parties to produce an “alternative, all-cash proposal from a single entity” to counter Shuanghui International Holdings Ltd.’s proposed $4.7 billion cash acquisition of Smithfield Foods. The letter was filed Tuesday with the U.S. Securities and Exchange Commission. The vote is expected to occur Sept. 24 during Smithfield-based company’s annual shareholders meeting at the Richmond offices of law firm McGuire Woods.

Jeffery C. Smith, managing member of Starboard, wrote in the letter that his firm has received nonbinded written indications of interest from companies that collectively could exceed Shuanghui’s deal to pay Smithfield stockholders $34 per share. Smith said it is likely that Starboard’s proposal would be “superior” for stockholders, but that it needs additional time to produce its rival merger proposal.

Under Smithfield and Shuanghui’s merger agreement, the deal can be finalized as late as Nov. 29, Smith said. Starboard will vote against the merger on Sept. 24 in an effort to buy time to complete and submit its rival agreement. “Starboard is generally supportive of a sale of Smithfield … but we believe the board failed to run a full and fair process to sell the company … to ensure shareholders realized the highest possible price,” Smith said. If unable to come up with a better acquisition by Nov. 29, Starboard will change its vote and support the Shuanghui buyout, he said.

Starboard spokesman Doug Snyder refused to identify the third-party companies involved. He also declined to say whether Starboard’s deal would keep Smithfield Foods ownership in the United States. Smithfield Foods spokeswoman Keira Lombardo said the company is not commenting.

In June, a Smithfield Foods investor, David Payne, filed a lawsuit in U.S. District Court in Alexandria asking the courts to take legal action to stop the company’s takeover by Shuanghui International. The lawsuit alleged that shareholders have been denied crucial information about the deal and that the purchase price undervalues the pork company. As evidence in his suit, Payne included a research paper produced by Starboard that argued the company could fetch considerably more money if it were to be split into three pieces and sold separately. A call to Payne’s attorney, Fairfax County lawyer Christie A. Leary, was not returned.

In addition to the shareholders vote, the acquisition is also being vetted by federal agencies to make sure it doesn’t threaten national security. A House committee has also asked Smithfield to submit information about its production of heparin — an anti-clotting substance that is derived from pig intestines. Clayton Bailey, a Dallas lawyer who has worked with large meat companies, declined to comment specifically on Starboard’s letter. He has been monitoring Shuanghui’s proposed merger and is doubtful the government has grounds to stop the deal.

“Based on the hearings, I don’t really see how the government could block it unless someone in the executive branch feels it would harm our national interest,” Bailey said. “This is a great opportunity for American swine producers to supply exports for China.” It’s not the first time a foreign-owned company has bought an American meat company, Bailey said. He said there was nowhere near the same level of public debate in 2009 when Brazilian beef producer JBS bought the majority stake of bankrupt chicken producer Pilgrim’s Pride for $800 million, or in 2011 when Mexican-based company Industrias Bachoco bought out privately-owned Arkansas-based chicken producer OK Foods for an undisclosed amount.

“I think it’s because they are Chinese,” Bailey said. “I can’t identify any other reason.”

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