Smithfield Foods may be ready for sale; analyst says

Smithfield Foods Inc., the nation's largest pork producer, could be ripe for a sale but a rumoured sale price of US$17 a share seems too high, an analyst said late Wednesday (Apr 22).

 

Morningstar equity analyst Ann Gilpin said that shares of the Virginia-based company rose 4 percent to close at US$10.33 on Wednesday amid takeover speculation, adding that more than 6 million shares changed hands during trading, more than double the usual amount.

 

Gilpin said that investors were reacting to rumours that COFCO Limited, China's largest national agricultural trading and processing company, was offering US$17 a share for Smithfield.

 

She said that the statement seems too specific to fully shake off speculation, but the supposed bid seems too high, which is likely why shares did not rise higher on Wednesday.

 

She said it made sense that Smithfield would want to pursue a sale since the business is suffering amid a slump in the meat industry, but does not mean it would fetch that high of a price.

 

She said given the financial situation that this company is in; they are highly leveraged and losing money on a quarterly basis, for many quarters now.

 

Smithfield has been posting losses in the past year as it deals with a slump in the overall meat industry.

 

The industry is hurting due to commodity prices that reached record highs last year coupled with weak demand and a supply glut that is depressing prices.

 

Commodity prices have been dropping, so that will help boost margins, but pricing is improving as the industry cuts back on production.

 

Smithfield has also taken measures to change the focus of its operations, by boosting its packaged meats business, which is more profitable than its fresh hog business.

 

In February, Smithfield announced it would close six factories, including one in its hometown as it streamlines its business to focus more on packaged meats.