Smithfield Foods, Inc. (SFD) Buyout Is a Matter of National Security

Earlier this year, the world’s largest pork producer, Smithfield Foods, Inc. (NYSE:SFD), received an appealing buyout offer from a China-based meat processor– Shuanghui The board agreed to the $7.1 billion takeover (debt included) — the largest Chinese buyout of a U.S. firm in history. Now, though, it appears that U.S. regulators may block the deal as a matter of national security. If the deal fails, investors may have to worry, as the company is struggling to grow amid rising feed costs and tepid international demand. Here’s why federal regulators are concerned.

Sell it
Smithfield Foods, Inc. (NYSE:SFD)’s CEO, C. Larry Pope, has tried to convince the Senate Agricultural Committee that this sale is not only in the best interest of the company and its shareholders, but for the United States, as well.

Smithfield Foods, Inc. (NYSE:SFD) currently owns 460 pork farms and contracts with more than 2,000 others. Selling the business to a Chinese-owned entity would be a significant shift in the U.S. agribusiness landscape, and it has lawmakers concerned. Underscoring this is the fact that the Committee on Foreign Investment in the United States is closely reviewing the deal — a rare procedure for a food company buyout.

Laundry list
Chinese ownership of the biggest pork supplier in the U.S. raises legitimate concerns. For one, there’s a question of food safety. China’s food safety rules are known to be quite lax, and if they owned the farms here in the U.S., the resulting food quality could easily suffer. Of course, there is also the issue of a secure food supply. Handing over these farms shifts quite a bit of bargaining power over to the Chinese, even if the hogs are on U.S. soil. Americans could see a shortage of pork in the supermarkets, and higher prices.

Other concerns include the proximity of some of the farms to U.S. military bases. Snooping is a hot-button issue right now (even if the focus is on the U.S.), and Chinese-owned farms that are a hop, skip, and a jump from our domestic installations could provide easy vantage points for prying eyes and ears.

What are the chances?
It’s hard to say how strong of a stance U.S. regulators will ultimately take, though the initial questions suggested a decent amount of hesitance. The deal could pave the way for future foreign agribusiness acquisitions, and some are worried that we are selling away one of our most fundamental needs.