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Smithfield deal gets 2nd US security review

By Zhang Yuwei in New York  (China Daily)

12:50, July 26, 2013

Smithfield Foods Inc, the world's largest pork processor, said Wednesday that a United States foreign-investment committee will conduct an additional 45-day review of its proposed $4.7 billion takeover by Shuanghui International Holdings Ltd, China's largest meat producer.

A Smithfield statement announcing the secondary review offered no comment on the reason for it. But some experts said following an initial 30-day review, the Committee on Foreign Investment in the United States, or CFIUS, which vets proposed foreign acquisitions of US companies for national security concerns, is conducting the additional scrutiny due to "political pressure".

"Moving to the second phase review of this transaction is clearly in response to political pressure exerted by Senate hearings on the takeover earlier in July," said Cliff Burns, a Washington-based attorney with Bryan Cave LLP.

If it goes through, the deal - valued at about $7.1 billion including debt - would be the largest takeover of a US company by a Chinese buyer. But since the announcement in May, some US lawmakers have been voicing concerns about the merger.

The inter-agency committee within the US Department of Treasury is looking at the deal for potential national security concerns, a review process that is confidential.

Earlier this month, Starboard Value LP, a New York-based hedge fund and a large Smithfield shareholder, urged Smithfield to explore other options rather than go ahead with the Shuanghui bid.

In a Congressional hearing on the acquisition earlier this month, Smithfield Foods Chief Executive Officer Larry Pope tried to soothe concerns over issues including pork imports from China.

"This transaction is about exporting high-quality meat products from the US to China to meet the growing global demand for pork and increase global food safety standards," Pope told the Senate panel.

Burns said even though senators' concerns over the Chinese acquisition possibly posing challenges to food safety and security were not explained, "the argument was made in the hearing that the acquisition of Smithfield was a security issue because it could affect the security of the nation's food supply.

"The senators also tried to conflate the economic impact of large takeovers into a national security issue as well, which would certainly take CFIUS reviews into areas not clearly intended by the Congress when it passed the legislation enabling CFIUS in the first place," said Burns, whose law practice focuses on export controls and economic sanctions.

Another reason for the additional review, Burns noted, is linked to the size of this deal.

"I suspect that these issues are raised simply because of the size of the transaction and would not have been raised in the case of smaller deals involving US food-processing companies," said Burns.

Another Washington-based lawyer, who is familiar with Smithfield but asked not to be identified, agreed.

It has become "increasingly common" in CFIUS cases that the committee cannot complete its review within the first 30 days and requires up to an additional 45 days for "high-profile Chinese acquisitions", said the source.

The additional review, he added, doesn't necessarily mean that CFIUS has found any national security issues that would cause a failure to approve the transaction.

Virginia-based Smithfield and Henan-based Shuanghui International, a privately owned meat processing company, continue to expect the transaction to close in the second half of this year.

Both companies, however, said they don't plan to comment further on the confidential review process.

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