Last May, when Shuanghui International Holdings chairman Wan Long and Smithfield Foods president and CEO C. Larry Pope announced the merger of their respective companies, Adam Taetle breathed a sigh of relief. Taetle, co-head of Barclays Capital’s global consumer retail group, represented U.S. pork producer Smithfield on its acquisition by conglomerate Shuanghui, the biggest-ever Chinese takeover of a U.S. business. “There were certainly moments where we questioned whether we’d be able to get it over the line,” he says of the landmark $7 billion deal. With Barclays serving as Smithfield’s lone adviser, the tie-up closed in late September after the company’s shareholders approved it overwhelmingly.
There was no precedent for a Chinese-U.S. merger of this size and nature, New York–based Taetle notes. Cultural differences and language barriers presented a challenge too. “Any of these factors could have potentially derailed the transaction,” says Taetle, 45, who previously led the consumer group at Goldman, Sachs & Co., where he advised Wm. Wrigley Jr. Co. on its $23 billion sale to candy maker Mars and Berkshire Hathaway in 2008. “But the strong industrial logic of the deal and the compelling financial opportunity for the Smithfield shareholders overcame the potential obstacles.”
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For Shuanghui and other Chinese businesses, the Smithfield buy signals that big U.S. takeovers are no longer off-limits. Times have changed since 2005, when China National Offshore Oil Corp. dropped its $18.5 billion bid for Union Oil Co. of California amid charges that the deal threatened U.S. national security.
Hong Kong–based Shuanghui wanted Smithfield, the world’s No. 1 pig farmer and pork processor, so it could sell premium U.S. products to middle-class Chinese consumers and improve its technology and food safety. The takeover made sense to Smithfield, Virginia–based Smithfield, which already shipped roughly a quarter of its exports to China, because domestic sales had disappointed for several years. Majority owner of Shuanghui Group, China’s largest meat processor, Shuanghui would also gain access to Europe: Smithfield holds a 37 percent stake in Spanish packaged meats company Campofrio Food Group.
One of the deal’s biggest hurdles was winning clearance from U.S. federal agencies. The Committee on Foreign Investment in the United States extended its national security review, and Smithfield had to assure lawmakers that it wouldn’t compromise America’s food supply by importing Chinese pork.
To finance the purchase, Shuanghui borrowed $7 billion from Bank of China and adviser Morgan Stanley. It paid $34 per outstanding Smithfield share, 31 percent more than the stock’s closing price on May 28. With Pope staying on as CEO of Smithfield, Shuanghui swiftly began integrating the international sales divisions of both companies, whose combined annual revenue is some $18 billion. Besides aiming to boost Smithfield’s sales globally, the new Chinese owner is planning a 2014 initial public offering on the Hong Kong Stock Exchange that could raise as much as $6 billion.
Bank of China and Morgan Stanley shared between $20 million and $30 million on the deal, but Barclays really brought home the bacon, earning $31 million in advisory fees.
($ Millions) *
|1||U.K. bank Barclays follows a £5.8 billion ($9.1 billion) rights issue with a $2 billion hybrid bond offering.||$1832|
|2||Warren Buffett’s Berkshire Hathaway and Brazilian investment firm 3G Capital pay $27.4 billion to take ketchup maker H.J. Heinz Co. private.||$97–107|
|3||U.S. telecom Verizon Communications agrees to give Vodafone $130 billion for the British carrier’s 45 percent stake in Verizon Wireless.||$93–103|
|4||Founder Michael Dell and Silver Lake Partners privatize U.S. computer maker Dell for $24.9 billion.1||$82–92|
|5||Brazilian phone company Oi and Portugal Telecom agree to a $15.7 billion tie-up under the former’s name.||$70–90|
|6||Cable giant Liberty Global buys the U.K.’s Virgin Media for $25.5 billion.||$882|
|7||Advertising firms Omnicom Group and Publicis Groupe agree to a $35 billion Franco-American merger of equals.||$50–70|
|8||Social media company Twitter launches a $2.1 billion initial public offering on the New York Stock Exchange.||$682|
|9||China’s Shuanghui International Holdings closes a $7 billion buyout of U.S. pork producer Smithfield Foods.||$51–61|
|10||iPhone maker Apple issues $17 billion worth of bonds.||$532|
|* Estimates unless otherwise noted. M&A totals only include advisory fees;|
debt and equity totals only include underwriting fees.
1 Deal value provided by Dell.
2 Publicly disclosed.
|Source: Thomson Reuters/Freeman Consulting Services.|