A large shareholder of global pork giant Smithfield Foods called Monday for the company to be broken up rather than sold to a major Chinese meat processor, in order to maximize its value.
The move potentially throws a spanner into Shuanghui International's push to lock in a strong supply of pork by taking over Smithfield, the world's largest hog farmer.
Investment group Starboard Value, which holds a 5.7 percent stake in the US farm-to-supermarket meat company, said that Shuanghui's $4.7 billion, $34-a-share offer last month deeply undervalues Smithfield.
Including debt, the bid by Shuanghui -- which controls China's largest pork processor -- values Smithfield at $7.1 billion.
But the breakup value for the US icon is between $9 billion and $10.8 billion, or $44-$55 a share, Starboard argued in a letter to the Smithfield board of directors Monday.
"We believe the proposed merger still significantly understates a conservative sum-of-the-parts valuation of the company," Starboard said.
Starboard said that Smithfield's Hog Production, International, and Pork divisions could easily be split to unlock higher value for shareholders without excessive tax costs.
Prior to Shuanghui's bid announced May 29, Starboard said it believed that there were several possible buyers for each unit.
"We believe there are numerous interested parties for each of the company's operating divisions, and that a piece-by-piece sale of the company's businesses could result in greater value to the company's shareholders than the proposed merger," it said.
While Smithfield is forbidden by its agreement with Shuanghui from seeking higher bids for the company, Starboard said it was possible to redesign the bid to include selling off parts of the company to other buyers.
"We look forward to determining whether there are potential interested parties who could facilitate a sum-of-the-parts transaction structure that could deliver even greater value for shareholders than the proposed merger at this time."
Shuanghui and Smithfield were both quiet on Starboard's statement.
At midday Smithfield shares were up 0.7 percent at $33.03 on the New York Stock Exchange.