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

Besides the political implications, some shareholders believe the buyout offer undervalues Smithfield Foods, Inc. (NYSE:SFD). Starboard Value, a 6% owner,  opposes the deal, suggesting a breakup of the company as a more viable alternative.

Specifically, Starboard believes the company is worth, potentially, 60% more than the current offer — or about $10 billion, as a sum-of-the-parts valuation. This would imply a share price around $54, compared to today’s $33 per share. Selling off pieces of the company potentially yields a greater take — a buyer may be inclined to pony up for a portion of the business, while not interested in the entire company. Still, Starboard’s valuation is ambitious, according to other analysts and fund managers. Continental Grain [http://www.usatoday.com/story/money/business/2013/06/17/starboard-smithfield-sale-undervalued/2430033/], formerly one of the largest shareholders, had previously held a similar sum-of-the-parts valuation, but has since said Shanghui’s $34 offer is fair.

Investors need to keep a close eye on the developments here, but should not assume Smithfield’s bid will approach Starboard’s estimates. Both the board and management are behind the current offer, and there isn’t much convincing evidence currently to back up a price north of $50.

Furthermore, considering the relatively weak environment in the pork markets. If the acquisition falls through, the Street will likely shift focus to the tepid financial performance.

The article Smithfield Buyout Is a Matter of National Security originally appeared on Fool.com.

Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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