Edited and translated by Zhang Qian, People's Daily Online
Should China's regulators react?
On September 6 U.S. local time, Smithfield Foods Inc. and Shuanghui International Holdings Limited issued a joint statement announcing that Shuanghui's acquisition of Smithfield had been approved by the committee of foreign investment in the United States. At the end of May this year, the two companies reached an agreement - Shuanghui International bidding for Smithfield at a price of 4.7 billion dollars, and taking on Smithfield's debts. The total value of the deal involves around 7.1 billion dollars.
Shuanghui International has committed to keep Smithfield operations, management, brand, and headquarters, and has promised not to lay off employees or close factories. It will continues to work with manufacturers, suppliers, and farms in the United States.
It is definitely good business for Smithfield to sell its products to the Chinese market, the world's biggest pork market. The pork market is saturated in the United States - United States department of agriculture data indicates that American pork consumption has contracted for four consecutive years. At around 50 million tons per annum, China's current consumption of pork is the world's largest, and double that of the U.S. market, accounting for about half of global consumption. According to the Wall Street journal, at present Smithfield's pork exports to China represent about 25 percent of the company's output.
There is a general belief in the industry that the completion of the acquisition will lead Smithfield to increase its pork exports to China. In media reports of the July 10 hearings of the United States congress, the Chief Executive of Smithfield Larry Pope was quoted as saying that some of the objectives of the acquisition are to meet China's growing demand for pork, to help the U.S. export more pork to China, and to help U.S. agriculture to expand production and increase employment.
Chairman of the Shuanghui group Wanlong also made similar statements.
For Smithfield, whose business was in decline, the Shuanghui deal has undoubtedly opened up new opportunities, but many questions for Chinese stakeholders in this acquisition remain unanswered .
Shuanghui International is the main shareholder of Shuanghui Development Company, whose business is dedicated to meat processing. As the main purpose of the acquisition is to import meat to China, it will inevitably cause serious conflicts of interest for Shuanghui Development Company and its stakeholders, triggering horizontal competition for Shuanghui Development, which will possibly change its path of future development.
Depending on the volume of increased imports, there is likely to be a consequent impact on the meat industry in China. The key element of Shuanghui’s acquisition is to enable Smithfield to export meat products to China. This will stimulate related industries and employment in the United States, but it will also impact the pork market in China, and affect the industry and employment. To some extent it is like moving Chinese jobs to the United States.
Read the Chinese version: 或损我产业核心利益 双汇并购案监管层不应沉默; Source: People's Daily Online;