With the Smithfield Foods China deal likely to be signed in the coming months, the US-China trade ties are likely to get a boost. Shuanghui International Holdings, the largest meat processor in China, is taking over Smithfield Foods, the largest pork producers on the US for $4.7 billion. This deal is likely to strengthenthe economic bonds between the two countries. According to the deal, the Smithfield shareholders will receive an amount of $34 per share. This indicates, that it will amount to a 31% premium over Smithfield’s closing stock price of $25.07 last Tuesday. On Wednesday, the shares of Smithfield closed 28% up, at $33.35. The deal stands at a total value of $7.1 billion.
Interestingly, Smithfield is the largest producer of hog and pork processor. It sells packaged foods to reputed companies, including Cook’s, Armour, Farmland and Smithfield. The exposure to the vast Chinese market is likely to strengthen the position in their business. Shuanghui, on the other hand, is a Hong Kong-based company and it owns various businesses, including food, logistics and flavouring products. Besides, it happens to be one of the largest shareholders of Henan Shuanghui Investment & Development, the biggest Chinese meat producers.
The deal has been approved by the boards of both these US and Chinese companies. However, the Smithfield Foods China merger is awaiting approval by the stakeholders of Smithfield and the US regulators, including the U.S. Committee on Foreign Investment. This committee consists of representatives from nine bodies, including the Justice and Treasury departments.
For Shuanghui, it is likely to be a profitable deal, as it will receive a continuous supply for pork. However, the Chinese company needs to take care of the quality of food it provides to its customers. US is known for its food quality and competitive pricing of food products. This deal will strengthen the commercial bonds between the two countries.