July 2, 2008

World leading pork producer Smithfield Foods announced on Monday (June 30, 2008) that it is selling 5 percent or 7 million of its stocks to COFCO, China's largest agricultural trading and processing company.
 

The transaction will provide Smithfield with funds to pay down debt and tide over until sales of its beef operations to JBS is concluded. The beef deal is expected to close in the third quarter of this year.

The price of the shares will be determined in the next several days, at the same time as the terms of an offering of US$350 million to US$400 million in senior contingent convertible bonds. Smithfield also plans to use the proceeds of the bond offering to pay down debt.

The transaction is passive and contains standstill provisions.

This is COFCO's first investment in a US company and it could help to assist its expansion in the Chinese pork industry.

COFCO hopes to learn technology and management advantages in the production chain from livestock breeding and quarantine to consumer table, according to COFCO spokeswoman.

China is the world's largest pork producer and consumer, with pork consumption growing more than 10 percent annually in recent years. China's pork prices are also high due to supply shortages caused by a severe outbreak of blue-ear disease and a series of natural disasters including snowstorms and the recent Sichuan earthquake.

Smithfield's shares fell below US$18 per share on Tuesday (July 1, 2008), their lowest level in about five years. The company accumulated debts last year when it went on an acquisition spree.