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A large shareholder of Smithfield Foods, Inc. on Monday opposed the buyout of the world's largest pork processor by China's Shuanghui International Holdings Limited and suggested a breakup of Smithfield's business to seek greater corporate value.
In a letter to the Board of Smithfield, Starboard Value LP, which holds a 5.7-percent stake of Smithfield, said the proposed merger "significantly understates a conservative sum-of-the-parts valuation of the company."
Last month Shuanghui announced the acquisition of Smithfield for approximately 7.1 billion U.S. dollars, including debts, or 34.00 dollars per share.
"Our research indicated that the sum-of-the-parts value of the company's operating divisions, which include Hog Production, International, and Pork, was well in excess of the then-current trading price of Smithfield," Starboard said in the letter.
Starboard estimated the sum-of-the-parts valuation of the company to be worth between 9 billion dollars and 10.8 billion dollars after tax, or approximately 44 dollar to 55 dollar per share.
The shareholder said it intended to identify and communicate with interested strategic or financial acquirors for Smithfield to determine whether piece-by-piece sale for greater value is achievable and may hopefully result in a submission of a "Superior Proposal" under the terms of the merger agreement.
Shuanghui's offer for Smithfield, if completed, could be the largest acquisition ever by a Chinese company of a U.S. counterpart.
According to the merger agreement, the transaction is expected to close in the second half of 2013. The closing of the transaction is subject to the approval by Smithfield's shareholders and related legal procedures, among others.
Shares of Smithfield Foods rose 0.79 percent to trade at 33.06 dollars a share in morning trading.
Smithfield on Friday reported a 63-percent slump in net income in its fourth quarter of 2013 fiscal year earnings report, as higher commodities costs reduced its profit margin.
