Editor's Plate: Why We Chose Smithfield as our Processor of the Year

After a few years of introspection and quiet, the world's pork leader finds a new recipe for success.

By Dave Fusaro, Editor in Chief

Smithfield Foods Inc. has seen good times and bad. During the best, the company aggressively bought out competitors as well as a few processors that brought it into new categories. During one of the lean times, Smithfield itself was acquired. But Smithfield is on a roll again, buoyed by U.S. fascination with protein, foreign markets for pork and some recent acquisitions.

The company’s 2013 acquisition by a Chinese company not only shored up finances during a weak time but further opened the door to the world’s biggest market for pork; and now may be an insurance policy against any trade wars between the U.S. and China. This is a particularly interesting time to name Smithfield Foods our 2018 Processor of the Year, and we thank the company for opening its doors to us.

Sales last year eclipsed $15 billion, an 8 percent increase from its previous year and the highest ever for the company. Smithfield perhaps has never been stronger. Although, let me repeat an anecdote contained in our cover story (p24): Smithfield was such a hot property in 2001 that it placed an ad in the Wall Street Journal that compared the company’s stock performance to some of the most popular stocks of the day, even Warren Buffett’s Berkshire Hathaway. Those must have been heady days.

The next few years brought financial headwinds, and the stock price tumbled. By 2013, the company looked undervalued and vulnerable. A company that once had been the hunter had become the hunted, and multiple suitors were lining up.

The most unlikely was China’s leading pork processor, Shuanghui International Holdings. It was a time of growing concern over China’s economic power, its trade surplus with the U.S. and its acquisition of a handful of American companies.

As a public company, Smithfield had little recourse other than to sell to the highest bidder. But from a strategy standpoint, there were a number of good reasons to partner with Shuanghui. Foremost was that China was and still is the world’s largest market for pork, and demand outstrips its supply.

There was debate across the U.S. over the wisdom, even the legality, of allowing an American food company to be acquired by a Chinese company. Critics worried about who would be running the acquired company and their support for farmers, environmental issues, even food safety. A dozen organizations wrote Congress, especially the Senate Agriculture Committee. The intergovernmental Committee on Foreign Investment in the United States (CFIUS) was concerned.

But by mid-September of 2013, the deal cleared governmental hurdles and was overwhelmingly approved by shareholders. It was the largest Chinese acquisition of an American company up to that time. The day after the closing, the sun rose as usual and it remained business as usual for Smithfield and the rest of the U.S. pork industry.

Any lingering concerns were diluted when, after a year of non-changes, Shuanghui itself held an initial public offering of stock and formed a new holding company, WH Holdings, which now owns Smithfield and Shuanghui. While that created some formal separation between Smithfield and Shuanghui, there are obvious synergies being utilized.

Wan Long is chairman, executive director and CEO of WH Holdings. He started working in a meat factory in 1968, so he has paid his dues to the meat industry. While he and related parties remain the biggest shareholder, at 34 percent, now investors all over the world own the parent company and, indirectly, Smithfield. Smithfield CEO Ken Sullivan estimates half the shares now are held by what would be considered “Western” companies. “Now we are a true global company,” he says. Simply a mirror image of such “American” companies as PepsiCo, Tyson, General Mills and Coca-Cola. No more intimidating than Nestle, JBS or Danone.

Smithfield Foods joins a long line of previous Processor of the Year award winners, which you can read about on our website.

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