An activist hedge fund took aim at Smithfield Foods on Monday, arguing that the pork producer should consider splitting itself up despite its proposed $4.7 billion sale to a major Chinese meat processor.
The fund, Starboard Value, wrote in a letter to Smithfield’s board that it believes the company is worth much more separately. The investment firm said that it owns a 5.7 percent stake, making it one of the largest shareholders in the company.
Shares of Smithfield were up more than 2 percent in premarket trading on Monday, although they remain below the Shuanghui offer price.
The letter marks a potential fight over Smithfield, one of the country’s biggest producers of hogs. Last month, it agreed to sell itself to Shuanghui International for $34 a share, in a bid to increase sales of American pork in China.
But Starboard has picked up an argument advanced against Smithfield over the years: that its vertically integrated operations, from raising hogs to slaughtering and processing them into bacon and ham and then selling the products, are worth more separate than combined.
“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,†the hedge fund wrote.
Starboard may be in for a tough fight. Smithfield’s management team, led by C. Larry Pope, has defended the logic of keeping the company whole, as have Shuanghui executives. Before announcing the deal with Shuanghui, Smithfield had been in talks with two other buyers as well.
One of Smithfield’s former biggest investors, the Continental Grain Company, had also called for a breakup of the company. But the agricultural concern instead sold off virtually its entire stake earlier this month, taking advantage of the rise in share price since the Shuanghui deal was announced.
Starboard acknowledged that Smithfield’s deal with Shuanghui prevents the company from seeking rival takeover bids. Instead, the hedge fund offered to look for and bring in potential suitors for Smithfield’s divisions.
In taking aim at Smithfield, Starboard is choosing one of its biggest targets yet. The activist hedge fund has made its name agitating against the likes of AOL.
