SOME have called it an unwarranted takeover of an American company by those dastardly Chinese commies. A few have complained that it might lead to a cheapening of products and a lessening of Smithfield's excellent food safety record after it yields management privileges to a company based in a country that has been riddled with highly questionable scandals.
That river of dead pigs in recent news reports doesn't exactly create confidence in the future of a Chinese-run American pork business.
Let's ignore the idle chatter around this event, though, and talk cold, hard business.
First, you must understand that the offer to buy Smithfield Foods was made by Shuanghui International, one of the most successful companies behind China Inc., a Far East corporate superpower run by the wealthiest entrepreneurs.
The country is now a well-run business, not the failed and insular Maoist China of a generation ago. The ruling class has the religious fervor of the newly converted when it comes to building a colossus of wealth.
Second, Smithfield is an American-based company as opposed to an American company, and that is a huge difference. Its fearless leader, chairman Joseph Luter III, understood very early in his career that the real growth markets were outside North America. He pushed into Eastern Europe some time ago, seeing it as a low-cost entry point into the more prosperous Western European nations.
Smithfield's international businesses include meat processing and distribution operations in Poland, Romania and the U.K. It has meat processing operations in Western Europe and Mexico and hog production operations in Poland, Romania and Mexico.
Smithfield's home office might still be in Smithfield, Va., but, like most major U.S. corporations, it left its American origins behind long ago. Free enterprise has never recognized national, ethnic or political boundaries.
Also, Luter, a shrewd and knowledgeable businessman, has been courting the huge Chinese market for a while. He knew that China was the leading hog-producing, pork-consuming nation in the world and that he had the largest pork-centric business in the world.
He saw gold on the shores of Shanghai and the burbs of Beijing, China. Yes, folks, dear old Joe, one of the American meat industry's most successful capitalists, had lust in his heart for the world's biggest food market.
Finally, fear not the food safety incursions that some have predicted; not even noted food safety lawyer Bill Marler believes that. Shuanghui, China's largest pork producer, isn't about to cheapen the Smithfield name, and Luter will not allow that to happen. Brands like Smithfield Packing Co. Inc., Farmland Foods Inc. and John Morrell Food Group are much too valuable.
What Shuanghui wants is access to the technical expertise behind Smithfield, and it is willing to put an estimated $7 billion on the table for it. Luter wants wider access to the world's largest pork market, and he's willing to accept $7 billion to get it.
The deal faces a few obstacles: review by the Committee on Foreign Investment in the United States, a panel of government agencies that must clear any deal that has national security implications and counteroffers by a handful of other companies, both foreign and domestic, that would like to own the Smithfield brand.
Brazil-based JBS comes to mind as a potential suitor, even if a company spokesman denied interest in the idea. Smithfield would instantly make JBS a major player in a sector where it currently has no standing.
Thailand's Charoen Pokphand is a giant in the poultry business and has an important presence in China. Grabbing an opportunity to practically own the Chinese branded pork business might be an opportunity it cannot ignore.
Investors that are not now in the food business but appreciate the magnitude of Smithfield's international presence might be considering bids. Luter has already mysteriously stated that "a lot of people love us" when asked about suitors hiding in the closet.
The real impact will be felt in the coming years as Chinese companies, with plenty of cash and a need for the kind of production skills developed by U.S.-based food companies, look for undervalued investment properties.
If the feds approve this deal, setting the legal precedent, Chinese interests, armed with overflowing bags full of U.S. dollars and an insatiable desire to feed the world's largest and fastest-growing middle class, will line up in a 7,000-mile-long conga line that stretches from Shanghai to America's heartland. Their actions could trigger a remarkable financial bubble not seen since the "dot-com" surge of the late-1990s.
It's like someone told me during a meeting of medium-sized meat processors when Sysco went on a buying spree a few years ago: "Half of the guys in this room are afraid Sysco will come calling, and the other half are afraid they won't." The same thing could be said about the Chinese.
*Chuck Jolley is president of Jolley & Associates, a marketing and public relations firm that concentrates on the food industry.
Volume:85 Issue:23