By Michael Barris in New York and Wang Zhuoqiong in Beijing ( China Daily)

A US security panel has cleared a plan by Shuanghui International Holdings Ltd to buy US pork giant Smithfield Foods Inc, moving the $4.7 billion deal a step closer to completion.

Shoppers choose Shuanghui's processed meat products at a supermarket in Yichang, Hubei province. Liu Junfeng / for China Daily

The move is expected to boost pork exports to China in the future and raise the brand and technology know-how for China's largest meat producer, industry insiders said.

With approval by the Committee on Foreign Investment in the United States in hand, the proposed takeover - the largest by a Chinese firm of a US company - now goes to Smithfield shareholders for a vote on Sept 24.

In a news release on Friday announcing the committee's decision, Shuanghui and Smithfield said they expect the purchase, which also includes $2.38 billion in assumed debt, to close soon afterward.

The deal, announced in May, was expected to gain the committee's approval, an inter-agency executive branch panel that examines foreign investment for potential national security threats. Both companies - the largest pork producers in their respective countries - argued that the acquisition would not compromise US food safety standards. The goal, they said, would be to export more Smithfield pork to China, not to import Chinese pork into the US.

China has become the world's largest user of the meat as its increasingly prosperous citizens eat more expensive protein. For Smithfield, the deal would extend its global reach as it seeks to boost sales amid declining pork consumption in its home US market.

"This transaction will create a leading global animal protein enterprise," Yang Zhijun, Shuanghui's chief executive, said in the statement. "Shuanghui International and Smithfield have a long and consistent track record of providing customers around the world with high-quality food. We look forward to moving ahead together as one company."

 

Some analysts have said the deal, if approved, could pave the way for more transactions tied to an ambitious new effort by Beijing to obtain raw materials and technology needed to run its fast-growing economy. China's rapid development into the world's second-largest economy has been accompanied by problems in food security and safety, as well as challenges in environmental pollution, healthcare and other issues.

The deal is expected to pass muster with Smithfield shareholders, despite a major stakeholder's opposition. Activist hedge fund Starboard Value LP, which holds a 5.7 percent interest in Smithfield, has vowed to vote against the acquisition in an effort to buy time to find a more lucrative deal.

The hedge fund has said it has held talks with potential rival suitors who would pay "substantially" more than Shuanghui's cash bid. Starboard has argued that the company would get a better offer for Smithfield if it were broken into three parts - US pork production, hog farming and international sales of fresh and packaged meats - and then sold.

Under the acquisition agreement, Smithfield is allowed to delay the upcoming special shareholders' meeting if it lacks sufficient votes to approve the acquisition.

Analyst Jim Fink told China Daily last week that he doubted that Starboard has the voting power to delay the meeting because 6.1 million of its 8 million shares are non-voting call options. Starboard and Smithfield did not return calls for comment on Fink's claim.

Yuan Song, an analyst at China-America Commodity Data Analytics Inc based in Wuhan, said after the deal Shuanghui could import high-quality and safe pork from the US to meet the rapidly increasing domestic appetite for high-end products.

He said one of the major drivers for Smithfield is to get into the Chinese market.

Wang Xiaoyue, an analyst at Cnagri.com, disagreed, adding that the deal is less likely to boost China's meat imports.

"Domestic supply is sufficient," he said. "There is no need to grow the imports."

But he said Shuanghui will benefit from its merger in lifting its brand recognition and technology know-how.