Why China’s Shuanghui Is Buying Smithfield

Chinese firm Shuanghui International Holdings announced its intention to buy Smithfield Foods Inc for $4.7 billion. The total of the transaction, including debt, would be $7.1 billion.

That’s big news for M&A watchers in the food industry, an arena that has captured my attention since my firm managed the acquisition of shrimp specialist Empress International by the popular tuna brand, Chicken of the Sea

Shuanghui International Holdings owns Henan Shuanghui Investment & Development Co (000895.SZ), the largest pork producer in China. US-based Smithfield (SFD.N), is the world’s largest producer of pork, raising 16 million hogs a year.  It was founded in 1936 as a meatpacking plant in Smithfield, Va and earned $13.1 billion in revenue in 2012.

There are a couple of obvious reasons Shuanghui International is buying Smithfield: to support its growing middle class and to diversify its markets.

However, a key reason that’s not being addressed is Shuanghui International’s desire for vertical integration. To put it simply, the Chinese company is acquiring Smithfield for its talent.

The term “Acqui-hire” has been used to describe the practice of many technology companies acquiring small startup firms for their talented employees; for example, Marissa Mayer’s acquisition of small tech companies during her tenure as Yahoo’s CEO.

Buying a company for its talent is not a new concept and is a strategic approach to acquisition when there often is no other way to recruit these valuable team members.

For Shuanghui International, Smithfield is a global company that provides experience and talent the Chinese company cannot get anywhere else. Smithfield has people that understand how to manage an established company with multiple famous brands, including Armour, Eckrich and Farmland, in a commodity industry.

They have operational excellence and business experience. Shuanghui needs the western MBAs to manage and expand successfully in business into U.S. markets.

In addition, Smithfield has its own experience with acquisitions. The company expanded significantly by purchasing nearly 40 companies between 1981 and 2008. These acquisitions were transformative for the U.S. pork industry. If this transaction is approved, it likely will bring about another big change for the industry, one that Smithfield has experience in managing.

Photo Credit: ** Maurice ** via Compfight cc