Smithfield Foods Inc. may be worth less as a whole than its separate parts, according to an activist investor asking the Virginia pork giant this week to reconsider its recent $4.7-billion sale to a Chinese meat producer.
Last month, Shuanghui International Holdings agreed to pay $4.7 billion, sans debt, for the full Smithfield package. The Hong Kong company offered $34 a share.
But Starboard Value, a New York-based investment advisor, said in a letter Monday to Smithfield’s board that breaking up the meat company and selling it in parcels would likely earn investors $44 to $55 a share.
In Starboard’s words: “A piece-by-piece sale of the company's businesses could result in greater value to the company's shareholders than the Proposed Merger.”
Starboard said it became a Smithfield shareholder in March and owns a 5.7% stake.
The investment firm said it’s not dead set against the Shuanghui deal, noting in its letter that its purpose “is not necessarily to come out in opposition” of the Chinese acquisition.
The Shuanghui arrangement “goes a long way towards unlocking the intrinsic value” of Smithfield, the world’s largest pork processor and hog producer, according to Starboard.
Still, the firm said it “would be remiss, however, to let an opportunity slip by” to generate greater value for Smithfield investors.
Starboard said there are “several likely strategic acquirors” for each of Smithfield’s various sectors, including hog production, international and pork.
Shuanghui’s offer price likely represented a “conglomerate discount” that factored in the sprawling operational and financial differences between Smithfield’s subdivisions, according to Starboard.
[Updated, June 17, 2:45 p.m.: In a statement Monday, Smithfield said it would review the Starboard letter but added that its board "is pleased with the outcome of the process it followed" leading up to the Shuanghui deal.
"Smithfield reaffirms its recommendation that its shareholders approve the Shuanghui merger,” the company said.]
In late morning trading Monday, Smithfield stock was up 29 cents, or less than a percent, to $33.09 a share. On Friday, the company said its fourth-quarter earnings fell 62.6% to $29.7 million for the period ended April 28.
In all, it was “a challenging year in hog production with higher grain prices due to last summer’s drought and, more recently, export market disruptions,” said Smithfield Chief Executive C. Larry Pope in a statement.