Heralding what could be the largest-ever Chinese takeover of an American firm, US regulators on September 6 approved Shuanghui International Holdings’ $4.7 billion bid for American pork producer Smithfield Foods Inc. The deal was initially announced in May. But before shareholders could vote on the transaction, it had to clear a national security review by the Committee on Foreign Investment in the United States (CFIUS).

Shuanghui and Smithfield spokespersons have said repeatedly that the deal is a “win-win” for the US and China, where the appetite for meat—and pork in particular—is ballooning. In written testimony, Smithfield CEO Larry Pope said, “This transaction is about exporting high-quality meat products from the US to China to meet the growing global demand for pork and increase global food safety standards.”

But some US politicians are not so sure. In a contentious hearing on July 9, senators—including Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.)—raised questions about the deal’s ramifications for the US food supply and food safety. “Economic security is part of our national security, and it should be considered when our government reviews foreign investment into the United States,” said Stabenow in her opening statement.

After the hearing, the Shuanghui-Smithfield deal went through a full 75-day investigation under CFIUS, as opposed to the standard 30-day review. Such full investigations now account for more than one-third of all CFIUS reviews, which examine the national security implications of foreign acquisitions, typically in fields like infrastructure, energy, telecommunications and defense. From 2009 – 2011, Chinese companies accounted for just 7 percent of all CFIUS reviews.

According to the Wall Street Journal, the approval sends a signal to Chinese companies that large US firms are now available as acquisition targets. “It signals that the administration is throwing open the barn doors to Chinese investment,” US-China Economic and Security Review Commissioner Michael Wessel told the Journal.

The deal has one last hurdle to clear before its conclusion. On September 24, Smithfield shareholders are scheduled to vote on the acquisition, which is widely expected to go through. However, one minority investor—hedge fund Starboard Value LP—is voting against the transaction and seeking alternate bidders who it has said will pay “substantially” more than the $34 per share stipulated in the current agreement.

The $13 billion Virginia-based Smithfield is the world’s largest pork processor and hog producer. Hong Kong-based Shuanghui International, along with its subsidiaries, owns a majority stake in China’s largest meat processor, Henan Shuanghui Investment and Development Co. Ltd.

[author] Catherine Matacic ([email protected]) is associate editor of the China Business Review. [/author]

(Photo by epSos.de via Flickr)

Posted by Christina Nelson