Saturday, June 08, 2013
Something not kosher about Chinese pork deal
by Larry Geller
It is, if voluminous press reports are to be believed, the biggest story, the biggest deal, ever in China-US business history. I’m talking about the announced takeover of America’s largest pork company, Smithfield Foods, by a company called Shuanghui International. The deal, it is said in dozens of media reports, opens the China market to US pork and will transform China’s largest pork producer into a global giant selling Smithfield’s products alongside its own in China, while utilizing the American company’s more advanced methods for pork rearing and slaughtering.
[China Private Equity, Smithfield Foods – Shuanghui International: The Biggest Chinese Acquisition That Isn’t, 6/2/2013]
Essentially, China will be acquiring Smithfield’s “advanced methods” for its own use. Presumably, the Chinese will learn how to use, for example, gestation crates:
Pregnant sows spend most of their lives in these individual stalls, which are too small to allow them to turn around. When they give birth, they are moved to a farrowing crate for about three weeks, then artificially inseminated and placed back into a gestation crate. The practice has led to criticism from animal welfare groups, supermarket chains and McDonald's. Smithfield said in 2007 that it would phase out gestation crates by 2017.
Good that Smithfield planned to do away with the inhumane practice even if it was ten years down the pike.
…but in 2009 said it would not meet the projected timeline because of operating losses caused by the recession.
Check the Wikipedia page for info on hog fecal matter lagoons, etc.
Well, at least American jobs will be preserved (such as they are) and the company will continue to pay taxes.
Oops again [from the China Private Equity story]:
One problem. A Chinese company isn’t buying Smithfield. A shell company based in Cayman Islands is. Instead of a story about “China buying up the world”, this turns out to be a story of a precarious leveraged buyout deal (“LBO”) cooked up by some large global private equity firms looking to borrow their way to a fortune.
Yes, the Cayman Islands, where Apple and other high-tech firms go to hide their income from taxation.
To unscramble the deal (Goldman Sachs is in it, Morgan Stanley is in it) read the article. None of this makes sense to me.
Should the deal crash under its debt load, which the article suggests as a possibility, will Smithfield be considered too big to fail?