Smithfield Foods: Activists and Acquisitions

20 Pages Posted: 7 May 2019

See all articles by Ming-Jer Chen

Ming-Jer Chen

University of Virginia - Darden School of Business

Ruo Jia

University of St. Gallen - Institute of Insurance Economics; University of St. Gallen - School of Finance

Gerry Yemen

University of Virginia - Darden School of Business

Abstract

This research-based case uses the circumstances surrounding Virginia-based Smithfield Foods' (Smithfield's) buyout offers from multiple foreign firms to examine the political and cultural constraints of a regionally rooted global firm in pursuing its strategic objectives. Smithfield's senior leadership receives offers from three firms, ShuangHui International (ShuangHui), JBS S.A. (JBS), and Charoen Pokphand Foods (CPF), based in China, Brazil, and Thailand, respectively, to acquire all of Smithfield's outstanding assets and liabilities. Smithfield's history was one of aggressive growth through acquisition, skirting government regulations, and truculence with respect to labor and environmental activists. However, as revenues plateaued, the firm faced increasing investor pressure to either trim costs or sell off portions of the company to improve shareholder value. Though the company's operations crossed continents, its identity and brand were tied to southeastern Virginia. Would it be best for the company or its shareholders to sell? If so, to whom? What risks would the firm face, politically and culturally, if it decided to do so? Because of its many details, the instructor teaching this case can approach the content from a number of strategic or leadership perspectives.

Excerpt

UVA-S-0308

Apr. 1, 2019

Smithfield Foods: Activists and Acquisitions

C. Larry Pope, CEO of Smithfield Foods (Smithfield), and Joseph W. Luter III, chairman of Smithfield's board of directors, were in Williamsburg, Virginia, for a meeting with the company's board of directors on April 21, 2013. Joining Pope, Luter, and the board were advisers from Barclays Investment Bank and representatives from the international law firm of Simpson Thacher & Bartlett. Their purpose that day was to map the future direction of the company, then the largest pork production, processing, and packaging firm in the United States. Despite its size, Smithfield was anchored to a regional history and community. The company was founded in and had continued to operate out of the town of Smithfield, Virginia, since 1936. Although its population was less than 8,000, the town's name had been synonymous with cured hams in the South as early as the 1870s. Remarkably, among the possible futures to be discussed that day, none was more urgent than the question of whether Smithfield would continue to operate as a publicly traded US company or become a subsidiary of China-based meat processing firm ShuangHui International (ShuangHui), Brazil-based JBS S.A. (JBS), or Thailand-based Charoen Pokphand Foods (CPF).

The events leading Smithfield to this decision had begun in early March, after the company released its third-quarter earnings. Continental Grains Company (Continental), one of Smithfield's largest institutional investors, had issued a letter on March 7 accusing the company's leadership of acting against shareholder interests by not splitting up the firm and selling its unprofitable fresh-pork division to another meat firm, while spinning off its more profitable meat packaging and international meats divisions. The letter noted the company's stock had declined 26% over the last seven years, paid no cash dividends, and had no clear strategy for growth. In contrast, Continental noted that Smithfield's competitors, Tyson's and Hormel's, stock returns were 70% and 131%, respectively, with $ 429 million and $ 729 million paid out in cash dividends during the same period. Pope and

Keywords: M&A, ambiculture, postmerger integration, nationalism, cross-border acquisition, American identity, Virginia business

Suggested Citation

Chen, Ming-Jer and Jia, Ruo and Yemen, Gerry, Smithfield Foods: Activists and Acquisitions. Darden Case No. UVA-S-0308. Available at SSRN: https://ssrn.com/abstract=3371043

Ming-Jer Chen (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/chen.htm

Ruo Jia

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, St. Gallen 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Kirchlistrasse 2
St.Gallen, CH-9010
Switzerland
+41 71 224 79 74 (Phone)
+41 71 224 79 90 (Fax)

HOME PAGE: http://www.ivw.unisg.ch/de/Lehrstuhl%20Eling/Team%20VM?person=b8b3d7ef-04dd-4693-8b9f-946e91a6bcf4&n

Gerry Yemen

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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