Smithfield Foods (SFD) Could Be Worth More in Piece-by-Piece Sale - Starboard
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Smithfield Foods, Inc. (NYSE: SFD) 5.7% shareholder Starboard Value issued a letter to the company suggesting it could be worth more than the $34/share being received in the proposed Shuanghui acquisition through a piece-by-piece sale. Specifically, Starboard believes a conservative sum-of-the-parts valuation of Smithfield is between $9 billion and $10.8 billion after tax leakage, or approximately $44 to $55 per share, representing an approximate 29%-62% premium to the Shuanghui deal.
Starboard Letter to Board:
Dear Members of the Board,
Starboard Value LP, together with its affiliates ("Starboard"), currently owns securities representing beneficial ownership of approximately 5.7% of Smithfield Foods, Inc. ("Smithfield" or the "Company"). We have been a shareholder of Smithfield since March 2013, several months prior to the announcement on May 29, 2013 that Smithfield and Shuanghui International Holdings Limited ("Shuanghui") entered into a definitive merger agreement valuing Smithfield at approximately $7.4 billion, or $34.00 per share (the "Proposed Merger"). We initially invested in Smithfield because we believed that the Company was significantly undervalued and that there were opportunities within the control of management and the Board of Directors (the "Board") to substantially improve value for the benefit of shareholders. Specifically, our research indicated that the sum-of-the-parts value of the Company's operating divisions, which include Hog Production, International, and Pork, was well in excess of the then-current trading price of Smithfield. Our analysis indicated that a separation of these businesses was entirely feasible and could be accomplished without significant tax leakage. Also, we believed that there were several likely strategic acquirors for each of these divisions. On a standalone basis, we had also identified opportunities for increased operational efficiencies that, particularly in the Pork division, could dramatically improve operating margins and profitability. Based on these factors, we felt Smithfield was an attractive investment with significant potential upside based on improved execution and a separation of the operating divisions.
As a significant stakeholder of the Company, we are sending you this letter in order to:
Share our in-depth research and analysis on Smithfield with management and the Board, which we believe clearly demonstrates that Smithfield could be worth well in excess of $34.00 per share if the Company had fully shopped its operating divisions to all such potentially interested parties;
Inform the Board that we believe there are numerous interested parties for each of the Company's operating divisions, and that a piece-by-piece sale of the Company's businesses could result in greater value to the Company's shareholders than the Proposed Merger; and
Inform the Board of our intention to fully explore the possibility of whether greater value could be realized by way of a piece-by-piece sale of the Company's valuable, yet disparate, operating divisions to interested third parties. In this way, we can be satisfied that Starboard fulfilled its duty to its investors while at the same time serving the interests of shareholders by providing them with another metric by which to critically evaluate the Proposed Merger.
We fully understand that under the Merger Agreement, Smithfield is contractually prohibited from seeking superior offers for the Company or from contacting third parties who may be interested in acquiring certain of the Company's operating divisions. In light of this limitation, Starboard is seeking to identify and connect any strategic or financial buyers for the Company's individual business units to determine if it would be possible to structure a sum-of-the-parts transaction that could deliver greater value for shareholders than the Proposed Merger. We hope that our efforts will lead to the submission of a Superior Proposal under the terms of the Merger Agreement.
By way of background, Starboard is an investment management firm that seeks to invest in undervalued and underperforming public companies. Our approach to such investments is to actively engage and work closely with management teams and boards of directors in a constructive manner to identify and execute on opportunities to unlock value for the benefit of all shareholders. Our principals and investment team have extensive experience and a successful track record of enhancing value at portfolio companies through a combination of improved operational execution and strategic transactions.
CONTINUE
Starboard Letter to Board:
Dear Members of the Board,
Starboard Value LP, together with its affiliates ("Starboard"), currently owns securities representing beneficial ownership of approximately 5.7% of Smithfield Foods, Inc. ("Smithfield" or the "Company"). We have been a shareholder of Smithfield since March 2013, several months prior to the announcement on May 29, 2013 that Smithfield and Shuanghui International Holdings Limited ("Shuanghui") entered into a definitive merger agreement valuing Smithfield at approximately $7.4 billion, or $34.00 per share (the "Proposed Merger"). We initially invested in Smithfield because we believed that the Company was significantly undervalued and that there were opportunities within the control of management and the Board of Directors (the "Board") to substantially improve value for the benefit of shareholders. Specifically, our research indicated that the sum-of-the-parts value of the Company's operating divisions, which include Hog Production, International, and Pork, was well in excess of the then-current trading price of Smithfield. Our analysis indicated that a separation of these businesses was entirely feasible and could be accomplished without significant tax leakage. Also, we believed that there were several likely strategic acquirors for each of these divisions. On a standalone basis, we had also identified opportunities for increased operational efficiencies that, particularly in the Pork division, could dramatically improve operating margins and profitability. Based on these factors, we felt Smithfield was an attractive investment with significant potential upside based on improved execution and a separation of the operating divisions.
As a significant stakeholder of the Company, we are sending you this letter in order to:
Share our in-depth research and analysis on Smithfield with management and the Board, which we believe clearly demonstrates that Smithfield could be worth well in excess of $34.00 per share if the Company had fully shopped its operating divisions to all such potentially interested parties;
Inform the Board that we believe there are numerous interested parties for each of the Company's operating divisions, and that a piece-by-piece sale of the Company's businesses could result in greater value to the Company's shareholders than the Proposed Merger; and
Inform the Board of our intention to fully explore the possibility of whether greater value could be realized by way of a piece-by-piece sale of the Company's valuable, yet disparate, operating divisions to interested third parties. In this way, we can be satisfied that Starboard fulfilled its duty to its investors while at the same time serving the interests of shareholders by providing them with another metric by which to critically evaluate the Proposed Merger.
We fully understand that under the Merger Agreement, Smithfield is contractually prohibited from seeking superior offers for the Company or from contacting third parties who may be interested in acquiring certain of the Company's operating divisions. In light of this limitation, Starboard is seeking to identify and connect any strategic or financial buyers for the Company's individual business units to determine if it would be possible to structure a sum-of-the-parts transaction that could deliver greater value for shareholders than the Proposed Merger. We hope that our efforts will lead to the submission of a Superior Proposal under the terms of the Merger Agreement.
By way of background, Starboard is an investment management firm that seeks to invest in undervalued and underperforming public companies. Our approach to such investments is to actively engage and work closely with management teams and boards of directors in a constructive manner to identify and execute on opportunities to unlock value for the benefit of all shareholders. Our principals and investment team have extensive experience and a successful track record of enhancing value at portfolio companies through a combination of improved operational execution and strategic transactions.
CONTINUE
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