With the news last week that Smithfield Foods, Inc. (NYSE:SFD) was being purchased by Chinese company Shuanghai International Holdings for $4.7 billion, it has me wondering if other U.S. meat companies are going to be acquired by Chinese companies. The Smithfield Foods and Shuanghai deal could touch off a flurry of mergers and acquisitions in the space. That would bode well for shareholders of Tyson Foods, Inc. (NYSE:TSN), Hormel Foods Corporation (NYSE:HRL), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Sanderson Farms, Inc. (NASDAQ:SAFM).
Why the interest from the Chinese?
In China food safety has become an important issue. There have been concerns over tainted milk, and most recently there have been worries over bird flu. Chinese meat companies are anxious to acquire American know-how for their operations. The acquisition by Shuanghai won’t be as much China coming into the U.S., but more of Americans going to China to teach the Chinese how best to run their operations.
For China’s booming economy, meat producers are in a great position to deliver large quantities of meat if they can do so safely and in an environmentally friendly way. In China pork consumption has exploded as incomes have risen. China’s rising incomes have increased the portion of meat on the Chinese dining room table and decreased the amount of rice and noodles.
Why buy Smithfield Foods?
Smithfield Foods, Inc. (NYSE:SFD) is the world’s largest pork producer and is famous for its Smithfield hams. Smithfield has developed a genetic strain that allows it to produce the leanest hogs in the marketplace. Shuanghai International is the largest pork producer in China, and this acquisition is fueled by Shuanghai’s global ambitions.
Shuanghai imports all its slaughtering and processing equipment from the U.S. By purchasing Smithfield, the goal for Shuanghai is to increase the level and standard of food safety. Shuanghai was forced to publicly apologize in 2011 when illegal additives were found in its meat products. Since then, the company has pledged to focus on quality control. By acquiring Smithfield Foods, Inc. (NYSE:SFD), Shuanghai is looking to complete that process.
What about other U.S. meat companies?
Tyson Foods is engaged in the production and distribution of chicken, beef, pork and prepared foods. Tyson Foods is in the protein business, and we know that’s what the Chinese are after right now. After the Smithfield Foods, Inc. (NYSE:SFD) deal was announced, Tyson Foods hit a new 52-week high.
The focus at Tyson Foods has been on innovation to fuel the company’s overall growth strategy. In the U.S., the prepared food market business is growing rapidly as more Americans opt for convenience. The company forecasts top line sales growth of 3% to 4% per year. Where the company has the most room for growth is in the international market. International sales are forecast to increase 12% to 16% per year.