American pork exporters have spent years trying to ramp up sales to China, the world’s most ravenous pork market. Their sales pitch has been stymied by onerous quarantine rules, protectionist impulses, and chaotic distribution channels. After a jump in 2011, shipments to greater China dipped 3% by value last year to $886 million. Given China’s growing protein diet and widespread worries over food safety, there’s plenty of upside for quality pork imports. That’s why the deal announced Wednesday by Smithfield Food Inc, the largest U.S. hog processor, to sell itself to China’s top producer, Shuanghui International could be a game changer. If the takeover goes ahead, Smithfield would get a crack at the most lucrative slice of China’s market: chilled, processed pork for supermarkets and convenience stores.
Shuanghui isn’t home dry as Smithfield still has the option to court other bidders. Thailand’s CP Group, the largest agribusiness operator in Southeast Asia that runs poultry farms in China, and Brazil’s JBS are reportedly in the mix. Neither has the muscle of Shuanghui in navigating the Chinese market for pork products, though CP has a foot in the door. Smithfield’s board may be swayed by other opportunities outside its mature North American markets. But Shanghui has a head start, including financing from Morgan Stanley , its lead advisor, and other foreign banks. Should there be a gap it can count on credit from Chinese policy banks that have supported previous overseas acquisitions. The Smithfield deal – $7.1 billion, including debt – would be the largest yet consummated by a Chinese buyer in the U.S. Investors seemed happy about the bid: Henan Shuanghui Investments shares were up 9.3% mid-afternoon Thursday (the bidder is the unlisted parent company in Hong Kong, which is controlled by chairman Wan Long).
U.S. regulators must approve any takeover and already there are cries of alarm over food security and tales of dodgy Chinese meat. Indeed, many Chinese consumers are suspicious of Shuanghui and other meat companies, with good reason. Floating pig carcasses and rat meat disguised as beef are only the latest food scares to hit the headlines. But a Chinese acquisition of a U.S. processor doesn’t mean that Americans will be eating crock Chinese cuts. The trade in pork is all the other way, and so is the technology transfer that Chinese firms crave as they seek to consolidate a fragmented, poorly run industry. Shuanghui isn’t looking to offload Chinese pork in Los Angeles. What it wants is to become the leading player in China. “Nobody has got a dominant share. It’s wide open,” says Joel Haggard, senior vice-president for Asia at the U.S. Meat Export Federation (USMEF).
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