May 31, 2013

    China pork firm bids $6b for US giant

    DEMAND for pork in China reflects its booming economy and rising middle class. But that rapidly growing appetite has strained its food-production systems, leading to breakdowns and a number of food-safety scandals.

    Now, China's biggest pork producer, seeking plentiful supplies and technical expertise, has agreed to buy Smithfield Foods, the 87-year-old Virginia-based meat giant with brands like Armour and Farmland, for US$4.7 billion (S$6 billion) in cash.

    If completed, the deal announced on Wednesday would be the biggest takeover of a United States company by a Chinese concern. But it must first overcome scepticism in Washington - and a potentially close examination by US regulators.

    Smithfield and its suitor, Shuanghui International, said they would submit the deal for review by the Committee on Foreign Investment in the US, a panel of government agencies tasked with clearing deals for national security.

    "There's a difference between a foreign company buying Boeing and one buying a hot-dog stand," said Mr Jonathan Gafni, who was involved with the foreign-investment committee when he was a deputy national intelligence officer. "But it depends on which corner the stand is on."

    Still, he expects the deal to pass muster.

    Other hurdles loom. A takeover by a Chinese company - because of well-publicised food-safety scandals in that country - could prompt concerns among US consumers and consumer groups, who may worry that Shuanghui will ultimately export the pork it produces in China to the US.

    Smithfield and Shuanghui said the deal was meant to do the opposite - increase exports of US products to China.

    "This transaction will allow us to access Asia in a big way," said Mr C. Larry Pope, Smithfield's chief executive.

    Some food experts said that Chinese ownership should not affect food safety at Smithfield. The company has had a good record in controlling pathogens, said Mr Bill Marler, a Seattle-based lawyer who represents the victims of foodborne illnesses.

    "They have had few recalls, and none that I know of that were ever linked to illnesses," he said.

    Conversely, Shuanghui, which also goes by the English name Shineway Group, has struggled with food-quality issues.

    Two years ago, Shuanghui was found to be selling pork produced with clenbuterol, which is banned as a food additive in the US, the European Union and China because of health risks.