In a seismic shift in global meat processing momentum, the largest pork processor in the US, Smithfield Foods Inc, is to be sold to China’s Shuanghui International Holdings.

The deal announced yesterday, which took the market by surprise, will cost Shuanghui US$7.1 billion, including debt. Shuanghui is a majority shareholder of China’s largest meat-processing business.

The acquisition positions Smithfield to expand its offerings in China through Shuanghui’s enormous distribution network analysts said after the announcement.

Under the agreement, Smithfield will privatise, with Shuanghui acquiring all of Smithfield’s outstanding shares for $34 per share in cash, a 31pc premium to Smithfield’s closing stock price of $25.97 on May 28. Smithfield’s stock price rose 28pc before the market opened yesterday.

“This is a great transaction for all Smithfield stakeholders, as well as for American farmers and US agriculture,” said C. Larry Pope, Smithfield’s president.

“We have established Smithfield as the world’s leading vertically integrated pork processor and hog producer, and are excited that Shuanghui recognises our best-in-class operations, our outstanding food safety practices and our 46,000 hard-working and dedicated employees,” he said, in a statement.

“It will be business as usual – only better. With our shared expertise and leadership, we look forward to accelerating a global expansion strategy as part of Shuanghui.”

Smithfield’s existing management team will remain in place, and there will be no closures at Smithfield’s facilities and locations, the market was told.

“This agreement represents a historic opportunity for both companies and their stakeholders,” said Wan Long, chairman of Shuanghui.

“Shuanghui is a leading pork producer in China and a pioneer in the Chinese meat processing industry. Smithfield is a leader in our industry, and together we will be able to meet the growing demand in China for pork by importing high-quality meat products from the US, while continuing to serve markets in the US and around the world. The combination creates a company with an unmatched set of assets, products and geographic reach.”

The agreement provided Shuanghui with access to high-quality, competitively-priced and safe US products, as well as Smithfield’s best practices and operational expertise, Mr Long said.

During a Smithfield teleconference following the announcement, managing director of Shuanghui, Zhijun Yang, told participants that the companies together could be a global leader in animal protein. “We are No. 1 in China; Smithfield is No. 1 in the US. No other combination has such a great opportunity. Chinese consumers like American pork. US farmers want foreign markets for their pork. This will be a win/win for both countries,” he said.

Massive distribution network

The US Meatingplace.com website said the acquisition meant Smithfield would gain access to a massive and intricate distribution network that landed pork products on the tables of the world’s most pork-hungry consumer market.

Shuanghui privatised in 2006 with an investment from an international group including Goldman Sachs (which owns shares in both Shuanghui and its closest rival, China Yurun Food Group), private equity firm CDH Investments as well as New Horizon, Kerry Group and Temasek, Meatingplace.com said.

It owns China’s largest meat processor, which employs more than 60,000 and claims annual revenues of US$6.26 billion.

The processor operates 20 meat processing facilities in China and is building four more. It slaughters 11.4 million hogs and produces more than 2.7 million tonnes of meat annually. Though most of its products are distributed domestically, it exports throughout Asia, particularly in Japan and Korea.

Distribution-wise, Shuanghui was a logistics giant, MeatingPlace.com said. The company owns 15 logistics centres across 12 Chinese provinces as well as seven private railways, all of which have been outfitted with cutting-edge temperature-control technology. It also operates a fleet of 1500 refrigerated vehicles.

"The acquisition provides Smithfield the opportunity to expand its offering of products to China through Shuanghui's distribution network,” Shuanghui Chairman Wan Long said in a news release. “Shuanghui will gain access to high-quality, competitively-priced and safe US products, as well as Smithfield's best practices and operational expertise.”