Investor says Smithfield worth more

Starboard, which owns 5.7% of Smithfield, opposes proposed merger of Smithfield with Chinese company.

A major strategic investor in Smithfield Foods Inc. has delivered a letter to the company's board of directors advising the board that the agreement the company reached for it to be acquired by Shuanghui International Holdings Inc. undervalues the company.

Starboard Value LP, which bought a 5.7% interest in Smithfield in March, proposed that the company would be far more highly valued if it were to sell each of its three operating divisions independently, a separation that Starboard said would be "entirely feasible."

Starboard said it has determined that there would be "several" likely acquirers for each unit.

The letter was delivered June 17.

Smithfield agreed three weeks ago to be acquired by Shuanghui for $34 per share, or $4.7 billion, and the assumption of $2.5 billion in Smithfield debt, bringing the total value of the deal to $7.2 billion (Feedstuffs, June 3).

The offer must be approved by Smithfield shareholders and regulatory authorities, including the Committee on Foreign Investment in the United States. However, the two companies expect the acquisition to be completed in the third quarter of this year.

In its letter, Starboard said it recognizes that the agreement includes a clause prohibiting Smithfield from contacting other parties for a superior offer or for their interest in acquiring the company's divisions.

Accordingly, Starboard said it plans "to identify" buyers for the three divisions to determine if it would be possible to structure "a sum of the parts transaction" that would deliver greater value than Shuanghui's offer.

The three divisions would be the company's hog production business and pork processing business in the U.S. and its international hog production and pork processing business in Europe.

The split up is similar to one proposed by Continental Grain Co., which had held a 6% interest in Smithfield and wanted the company to create three independent separate companies, a procedure that it suggested would increase shareholder value (Feedstuffs, March 18).

However, after the Shuanghui agreement and subsequent rally in Smithfield's share price, Continental dropped its proposal and sold its stock in the company (Feedstuffs, June 10).

Starboard is an investment management firm that invests in undervalued companies, which it said it had determined Smithfield to be when it invested in the company earlier this year.

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