Challenges and Opportunities of Shuanghui M&A

Smithfield Foods, the world's largest pork producer, announced on the 29th that it has accepted the acquisition of Chinese meat processor "Shuanghui International Company" at a price of about 4.72 billion US dollars. The largest acquisition of a U.S. company by a Chinese company to date. The two companies expect the transaction to close in the second half of this year. Shuanghui has also committed to retain Smithfield's existing business, employees and management. The deal, still subject to approval by shareholders and the Committee on Foreign Investment in the United States, would be the largest takeover of a U.S. company by a Chinese buyer if it passes potentially stringent regulatory scrutiny.

While the $4.7 billion deal will give Shuanghui an opportunity to gain a foothold in the U.S. food industry, the bigger point of the deal appears to be how the parties involved will bring Smithfield, an American brand, through the deal. Introduced to China. In China, food safety issues have received a lot of attention, and Chinese consumers have high trust in Western products.

In the eyes of the industry, Shuanghui is not only interested in Smithfield representatives High quality, affordable and safe American pork. In recent years, Chinese consumers have become increasingly concerned about food safety, and major domestic meat products brands such as Shuanghui and Yurun have not been spared. In the arduous and long process of rebuilding trust, Shuanghui seems to have found a shortcut this time.

China's pork consumption accounts for about half of the world's total pork consumption. In 2010, researchers from the Chinese Academy of Social Sciences stated in an analysis report that pork prices accounted for 10% of China's consumer price index (CPI), making it the commodity with the highest weight. According to Euromonitor data, pork sales in China reached nearly 52 million tons in 2012 and are expected to exceed 58 million tons by 2018. According to public data, Smithfield raises about 15 million pigs and slaughters 27 million each year. In addition to meeting the demand for pork in the US market, it also exports large quantities to China and other markets. In contrast, Shuanghui Development slaughtered a total of 11.4186 million live pigs in 2012, accounting for about 2% of the domestic market.

Like many large food companies in China, most of Shuanghui's hogs come from individual farmers. The practice has come under scrutiny in China, where small, poorly regulated farms have created a string of food scandals. Bandung, chairman of Shuanghui International, said in an interview that he hopes to increase the number of pigs from the company's own farms.

For Shuanghui International to complete its acquisition of Smithfield, it still needs Smithfield shareholder approval and approval from the Committee on Foreign Investment in the United States to satisfy existing foreign antitrust and anticompetitive requirements in the United States. Existing law and other special closing conditions. The CFIUS review process typically takes 45 days, unless the agency requests an extension, which typically begins weeks after the deal is closed.

Wang Zhile, director of the Multinational Corporation Research Center of the Ministry of Commerce, said: "The pig industry does not belong to the scope of US national security. The US approval this time is normal. If it is not approved, it will be abnormal. There is no reason not to approve such a project. People’s review of mergers and acquisitions is not based on the size of the amount, but on whether it affects national security. Huawei’s mergers and acquisitions were rejected for only more than 2 million US dollars.”

For this merger, the University of International Business and Economics Public Policy Su Peike, the chief researcher of the institute, commented that there are too many things to be integrated in international mergers and acquisitions, and the systematic integration of strategy, culture, management, quality, etc., if Field "Shuanghui" results can be imagined, if Shuanghui "Field" is like Mengniu posted Telunsu, the acquisition is only the first step, and the future strategy and pattern will determine the success or failure.

If the acquisition is successful, how it works is a big problem, arguably even bigger than the acquisition itself. Summarizing the successful experience and lessons of Chinese companies' overseas acquisitions, the biggest problem lies in the integration of culture, concept and management thinking. In the process of implementing cross-border acquisitions by many foreign companies, the experience of joint implementation with internationally renowned investment banks and strategic investors is worth learning.

On the one hand, the acquisition of this model will be more comprehensive, objective, and rational, and the acquisition price will be more reasonable; Forcing the acquirer to strengthen the management of the enterprise in a more scientific and standardized manner is undoubtedly beneficial to Shuanghui without any harm. At the same time, well-known foreign investment banks and strategic investors are more familiar with the laws, regulations, culture, and employee requirements of relevant countries than Shuanghui, which is conducive to less detours in acquisitions and less conflicts in future management.

As the world's most populous country and the second largest economy, China has a huge market and is facing consumption upgrades. Acquiring resources, brands, products, technologies and management experience of foreign companies through acquisitions and expanding the Chinese market should be the main type of overseas mergers and acquisitions by Chinese companies. "Going out with capital and buying things back" is a practical choice for Chinese companies to acquire overseas. If the Shuanghui acquisition is finally approved and successful, it will also provide confidence and experience for this type of overseas mergers and acquisitions.