Shuanghui International, China's largest meat processor, has agreed to buy Smithfield Foods for 7.1 billion U.S. dollars, a move deemed to elevate the Chinese company's global profile and sharpen its competitiveness in the domestic market.
Smithfield, the world's largest pork producer, will enjoy an unmatched set of assets, products and geographic reach and continue to serve markets in the United States and around the world after the acquisition, said Wan Long, chairman of Shuanghui International, on Tuesday.
Once acquired, Smithfield Foods will become a wholly owned subsidiary of Shuanghui International, and cease to be a listed company in the United States.
However, the deal will not bring any material changes to the company's management and its operation in the United States, said Larry Pope, president and chief executive officer of Smithfield.
"It will be business as usual, only better," Pope said in a statement published on the company website.
Wan said the deal presents a "historical opportunity" for Shuanghui to gain quality products and learn best practice and operational expertise from Smithfield.
Shuanghui claims a five-percent market share in pork products sold in China.
The deal will expand Shuanghui's offering in the Chinese market, especially the high-end pork product segment, said Wang Xiaoyue, a senior analyst with Beijing Orient Agribusiness Consultants Co. Ltd..
Wang said the deal's impact will be mostly felt in the Chinese market, as it will boost Shuanghui's competitiveness against its domestic rivals in low-temperature meat products.
He added that Shuanghui may also use domestic-raised pigs to produce pork products sold in the Chinese market with the Smithfield brand.
Shuanghui came under public criticism in 2011 for its use of pork containing clenbuterol, a chemical banned in China that makes pork leaner but can cause health problems if consumed by humans.
However, the U.S. Food and Drug Administration allows the use of ractopamine, a similar additive that increases lean meat growth, for commercially raised pigs.
It has been reported that 25 percent of Smithfield's pork exports go to China, and the company removed the additive from pig feed in 2012, in a bid to export its products to countries that ban such practices.
According to the deal, Shuanghui will pay 4.7 billion dollars, or 34 dollars per share to Smithfield Foods, a 31 percent premium to its Tuesday closing price on the New York Stock Exchange.
Shuanghui will also assume its debt, thus bringing the deal to a total of 7.1 billion dollars.
In a bid to ensure the safety of its product, Shuanghui has strengthened quality control and stepped up monitoring of its pig supply, the company said in a statement.