Shuanghui "going out" all the way against the wind

Many Chinese resident in the United States have tasted meat products such as ham and bacon from Smithfield Foods, the largest meat processing plant in the United States and the world, with a total of 46,000 employees. On May 29, Shuanghui acquired the company for $7.1 billion, making it the largest deal in a Chinese company's acquisition of a U.S. company. In addition to the largest amount, this transaction also marks that Chinese companies have moved from acquiring mineral resources to acquiring international brand companies.

Perhaps the news was announced on the eve of the meeting between President Xi Jinping and Obama, which made this originally ordinary cross-border acquisition transaction tainted with political colors, and some anti-China voices clamored for it, and even raised it to the level of national security superior.

Pork is indispensable on the Chinese table, and it has long been the largest pork producer and consumer in the world. Especially with the economic development, the consumption of meat has increased. Since 2008, it has become a net importer of pork. Pork to be imported will account for 10% to 15% of total demand, equivalent to about 60 to 90 million live pigs. In contrast, American eating habits have changed, pork sales have been declining year by year, and Smithfield has been in a state of thin profit for five years. The acquisition price of Shuanghui is US$34 per share, which is 31% higher than the market price. Coupled with the assumption of corporate debt, this acquisition will not only bring huge benefits to Smithfield shareholders and management, but also to American hog farming. And inject new vitality into the pork processing industry.

For Shuanghui, acquisition is a shortcut to learn about pork production and processing management and to enter the international market. Smithfield's facility can process 30 million pigs per year, and the size of the breeding plant is an average of 1.1 million sows in stock, plus it has its own slaughtering and processing plants. 10 years time is also very difficult to achieve this scale. Therefore, no matter how you look at this transaction, it is beneficial to others.

Actually, Shuanghui and Smithfield had been in long-term contact before their marriage. As a market as big as China, Smithfield has long seen it. Four years ago, CEO Pope and Shuanghui explored ways of cooperation and proposed mutual shareholding. Since Shuanghui's clenbuterol additive had a huge negative impact on the company's reputation, President Wan Long announced that he would develop his own breeding industry and strictly control the quality of pork. Smithfield's breeding technology became more important. At the same time, Continental Grains, Smithfield's major shareholder, has been pressuring to spin off the highly profitable pork processing segment from the highly volatile farming segment amid a slump in its share price. Shuanghui did not want to see Smithfield break up, so it stepped up its preparations to buy the entire company. When Bandung announced the merger, he specifically proposed to learn from Smithfield's "vertical integration" experience and adopt a more advanced farming method.

In addition to quality control, economic efficiency is also an important consideration: China's reliance on large imports of soybean meal and corn for feed, and the small scale of production, makes it 50% more expensive to raise a hog than the United States. So between 2003 and 2012, US pork exports to China increased sevenfold to 431,145 tons a year, worth about $886 million. Shuanghui understands the needs of China's growing middle-class consumer group and the market potential of imported high-quality meat products. The acquisition of US pork production and processing companies can keep both profits within the company. Opening up the Chinese pork market through this channel will bring more employment opportunities to the American animal husbandry industry, which should be a favorite of Americans.

It is a pity that these rational considerations have been misinterpreted in the clamor against mergers. Politicians who took the opportunity to hype and opinion leaders with prejudice against China said that poor-quality pork products would endanger people's health and involve national security. If pork on the table can rise to the level of a threat to national security, almost any product can be far-fetched and linked to national interests.

First of all, the United States has a very strict food inspection system, and the acquisition of Shuanghui is to use the Smithfield brand to enter the high-end market overseas and domestic, and it is impossible to reduce the quality. As for shipping Chinese pork to the U.S. for sale, it's simply not cost-effective.

Shuanghui's previous use of clenbuterol was hyped up. However, Smithfield also put additives in the feed. Whether it meets China's import standards remains to be tested. The marriage between Shuanghui and Smithfield actually helps to unify the standards of international meat import and export, benefiting the people of both countries.

Smithfield's CEO Pope anticipated that a Chinese-funded company's acquisition of a large company with a well-known American brand would inevitably encounter politicians taking advantage of the issue and setting off anti-China sentiment. He admitted that if Smithfield's buyers came from other countries, there would be no resistance. will be that big.

A congressman from Virginia, where Smithfield is headquartered, sent a letter to Pope expressing his disapproval of the sale of the business to the Chinese. His reason is that China's food safety standards are too poor, which is well known in the United States. Very emotionally threatened that his wife and friends will not trust the Smithfield brand and buy its products in the future.

Chinese companies going global are obviously mutually beneficial transactions for the host country, but they can be distorted and misunderstood from time to time. Perhaps the cross-border marriage of meat products companies has touched the people's food as the sky, an element of human survival. In the virtual era, the safety of food entering the belly and the reliability of supply still arouse the instinctive doubts of many people. Dalian Wanda's acquisition of the AMC cinema chain last year did not have such a big response.

This merger must be reviewed and approved by the Committee on Foreign Investment in the United States. This working group led by the Treasury Department and organized by relevant departments of the government and Congress once opposed CNOOC's acquisition of Unocal Oil on national security grounds. In fact, the latter sold the The oil reserves only account for one percent of the United States; Huawei and a private equity firm later joined forces to acquire the technology company 3Com, but it also gave up because of too much resistance. In the media, some Americans have claimed that Shuanghui will use Smithfield's biotechnology to engage in large-scale pig farming overseas, which will have a negative impact on the US export economy. Therefore, the investment banks and law firms involved in this merger are cautious about these concerns and dare not take them lightly. The review is expected to take approximately 75 days.