The U.S. government on Friday approved Shuanghui International Holding’s bid to buy iconic U.S. pork producer Smithfield Foods in what would be the biggest Chinese takeover of a U.S. company to date.
The merger joins Smithfield, the world’s largest pork company, with China’s biggest pork producer, in a deal valued at about $ 7.1 billion, including debt.
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The companies said in a joint statement they had received permission from the Committee on Foreign Investment in the United States to complete the transaction, which was struck in May.
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The deal gives Shuanghui a premium U.S. food brand at time when a series of food scares have rocked Chinese consumer confidence in domestic food products.
Smithfield shareholders are scheduled to vote on the deal on Sept. 24 and the companies said they expect the transaction to close shortly thereafter. Smithfield shareholders will receive $ 34 for each share of common stock they own under the deal.
“This transaction will create a leading global animal protein enterprise,” Zhijun Yang, Shuanghui’s chief executive, said in the statement.
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U.S. pork producers also expect to benefit from the sale in terms of increased exports of U.S. pork products to meet the growing demand of China’s middle class.
China has about 475 million pigs, or about 60 percent of the world’s total, according to the U.S. Agriculture Department’s most recent estimate. But it has been a net pork importer for the past several years and has become one of the United States’ biggest markets behind Japan and Mexico.
Even though that trend is expected to continue, the deal also gives Shuanghui access to advance production techniques that could boost China’s pork output in coming years.
Smithfield, based in the Virginia town of the same name, is best known for its hams but also makes sausage, bacon and other prepared meats under labels including Eckrich, Gwaltney and Armour. It has more than 46,000 employees in 25 states and four countries.
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The company reported a 36 percent fall in its quarterly profits on Friday due largely to lower exports to key markets.
Senate Agriculture Committee Chairman Debbie Stabenow has expressed concern the Shuanghui deal will be followed by a wave of other foreign acquisitions of U.S. food companies that collectively could pose a threat to U.S. food security.
“To be sure, the purchase of one American food company does not jeopardize America’s food independence. But Smithfield is our largest pork producer — will China or other countries seek to purchase our largest poultry, or dairy, or corn producers next? Is it in America’s security interests if in a decade or two our food supply is 30, or 60, or 90 percent foreign owned?” Stabenow wrote in an op-ed published Wednesday by POLITICO.
Other lawmakers have criticized China for blocking imports of pork containing traces of ractopamine, a feed additive widely used in the United States, and said they doubted China would approve the deal if the situation was reversed and Smithfield was trying to buy Shuanghui.
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“You know for a fact you could not do in China what they are doing here,” Sen. Mike Johanns, a Nebraska Republican, told Smithfield President C. Larry Pope at a Senate Agriculture Committee hearing in July.
Still, controversy over the deal never approached the furor that erupted over Chinese oil company CNOOC’s attempt in 2005 to buy the California oil company Unocal. In the face of intense congressional opposition, CNOOC dropped its bid.
In the same year, Chinese consumer electronics company Haier tried to buy U.S. home appliance company Maytag, but lost out to another U.S. firm, Whirlpool.
Those experiences, as well as the problems that Chinese telecommunications company Huawei has faced penetrating the U.S. market, have made many Chinese companies hesitant about investing in the United States, said Ed Gresser, a trade policy specialist at the GlobalWorks Foundation, a non-profit development group.
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U.S. approval of the Smithfield deal could give other Chinese companies in manufacturing, food and other consumer goods more confidence they can invest in the United States “without triggering a big backlash,” Gresser said
However, some sectors such as energy and high-tech are likely to remain sensitive, he said.
While Chinese foreign investment has skyrocketed to $ 509 billion in 2012 only about $ 5 billion of that is in the United States. That compares to U.S. investment of about $ 51 billion in China and another $ 48 billion in Hong Kong.
Pope, who could receive nearly $ 46.6 million from the planned deal, has sought to reassure investors and customers it would not damage the company’s commitment to quality food products.
“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 told the Senate farm panel in July.
Almost immediately after news of the latest development regarding the Smithfield acquisition hit the internet Friday, Stabenow.
“Because [CFIUS’s] review includes issues of national security, it is done in secret with no public oversight or transparency,” she says in a statement.
“…We still do not know if the potential impact on American food security, the transfer of taxpayer funded innovation to a foreign competitor, or China’s protectionist trade barriers were considered,” she says. “It’s troubling that taxpayers have received no assurances that these critical issues have been taken into account in transferring control of one of America’s largest food producers to a Chinese competitor with a spotty record on food safety.“
