Continental has been a large shareholder of the company for many years and currently controls ~6% of the shares outstanding. As part of its justification, Continental noted that since the current management team took control of Smithfield, the company’s stock price has woefully underperformed its peers, it has paid no cash dividends all while highly compensating its executives for this performance. The company wants management to start getting serious ‘about creating shareholder value’ and in addition to hiring an advisor, it urges the company to return more capital to shareholders, to add more experienced board members and to better link management compensation to shareholder value creation. Is that all?
It’s worth noting that in addition to being a long time shareholder, Continental used to actually have board representation at Smithfield. Continental’s Chairman Paul Fribourg and another Continental executive sat on the board until a dispute in 2009 led to both of them resigning. Interestingly, the group obviously decided to maintain much of their equity holdings in the company though…but this seems like a longstanding beef(or perhaps we should say longstanding pork).
In response, Smithfield issued a press release today acknowledging the receipt of a memorandum from Continental and said that its board would review it ‘in due course’. Smithfield’s shares jumped a bit higher on the news even after previously spiking over 10% following a better than expected earnings report. The company is currently trading up around its 52 week high, but long term performance is a different story. This local article notes that other shareholders seem a bit impatient with Smithfield and that some analysts are positive on the idea of a breakup. It will be interesting to see if Smithfield’s other large shareholders, such as The Arlon Group (~10%), weigh in on this situation.
We will keep you updated as this situation progresses and given Continental’s background, this has a chance to get much more interesting.
Disclosure: Author holds no position in any stock mentioned.
Related articles
- Shareholder urges Smithfield Foods to consider split (news.yahoo.com)
- Smithfield Foods Should Split Into 3 Units, Shareholder Says – Bloomberg (bloomberg.com)
- Shareholder Attack of Smithfield Has Risks, but Merits Too (SFD, HRL, TSN) (247wallst.com)
- Shakedown in pork land: Smithfield vs. Continental Grain (blogs.marketwatch.com)
- Bringing Home the Bacon at Smithfield Foods (247wallst.com)
Spin Doctor, this article is as weak as the valuations being thrown around by the Sell side, including the laughable CS report that farms could become a REIT (study REITS and E&P purge regulation before publishing a note like that). 1) Arlon Group IS Continental Grains (Arlon is the name of the in house investment vehicle). 2) The SFD brands are nowhere near HRL in quality and deserve a 7x max multiple 3) Campofrio is sinking while the Romanian operations are barely breakeven. Poland is decent. 4) the hog production is a money pit that nobody would wants, not even other strategics on the East Coast or Midwest.
“hog production, fresh & packaged meats and international – with different characteristics”.
I’m not sure how all three aspects have vastly different characteristics. I guess they can spin off the production part and focus on packaging/packaged meats and international. This isn’t a sexy business.