April 26, 2013

Continental Grain calls for division of Smithfield Foods

The top shareholder of Smithfield Foods, Continental Grain, will be seeking investor support to divide the US pork company.

Continental Grain believes that the move will raise some US$1.2 billion and lift the group's share price by more than 50%.

The firm, one of the world's oldest agribusiness companies, has also called on the meat group to immediately appoint three directors, in order to increase the agribusiness experience on the board.

Continental had questioned about Smithfield's extensive pig rearing operation. According to the firm, the "average industry profitability has been negative in the last five years and only marginally profitable over last 20 years".

Continental states that selling a majority stake in the hog production business, currently lowly rated by analysts, will raise more than US$200 million and improve Smithfield's share rating. The group may also benefit from the sales of its international business, including the Campofrio food group and businesses in Poland, Romania and the UK.

"We believe the European assets could be worth up to US$1 billion and divesting would remove a distraction and allow Smithfield to reinvest the proceeds in its core business," Continental said, estimating that the restructuring could lift Smithfield shares to US$40 or more.

Continental Grain's statements came in the midst of worsening relations between Smithfield and the firm, which became a shareholder in the meat group during 2006, and has a 5.8% stake.