It is one thing for an activist investor to oppose a merger
deal and push for another bidder and a higher price. It is more
unusual for an activist to actually go out and find a better
But this is exactly what Jeffrey Smith - a co-founder and
the chief executive and chief investment officer of New York
activist hedge fund firm Starboard Value - has apparently done.
On May 29 the food processing company Smithfield Foods agreed
to be acquired by Hong Kong-based holding company Shuanghui
International Holdings for $34 a share. In typical activist
manner, Starboard fired off a letter to Smithfield's board of
directors urging the company to seek a higher price. Smith
claimed that the sum-of-the-parts value of Smithfield's
operating divisions - which include hog production,
international and pork - far exceeds the current price of the
stock. Starboard called for a separation of these businesses,
which it claimed were worth between $44 and $55 per share.
Starboard also insisted that there are numerous interested
parties for each of the operating divisions.
At the time, at least one commentator accused Starboard of
engaging in "Excel spreadsheet activism," with a strategy laden
with too many assumptions to be taken very seriously. However,
Smith now seems ready to prove he is right. Ahead of a
scheduled September 24 special meeting to approve the deal, the
hedge fund manager says he is opposing it because he has found
some interested parties willing to buy the various pieces of
"We have received non-binding written indications of
interest from third parties, based on publicly available
information, for each of Smithfield's assets, which in the
aggregate imply a total value for Smithfield at a price
substantially in excess of the $34 cash deal with Shuanghui,"
Smith stated in a letter to Smithfield shareholders that was
made public on Tuesday.
Starboard reported in a regulatory filing that it owns
nearly eight million shares of Smithfield, or a 5.7 percent
stake. The hedge fund's stake includes a little more than six
million shares underlying call options.
Smith is urging the company to put off the scheduled meeting
for about two months, to no later than November 29, the latest
date the deal could be approved based on the negotiated merger
agreement. Under the deal with Shuanghui, Smithfield's board
can consider competing bids only before the acquisition is
approved. "We are seeking additional time, if needed, to submit
an alternative proposal to the board at a substantially higher
value than the proposed merger," Smith stated.
He did not spell out in his letter which firms or investment
groups are interested in the various parts of Smithfield. He
also did not say what price Smithfield would ultimately
receive. He just said he is working with "interested third
parties" as quickly as possible to put together an alternative
proposal "as expeditiously as possible."
Starboard is not the only hedge fund that has a strong
interest in Smithfield. We earlier reported that in the second
Smithfield was one of 15 stocks ranked among the 50 stocks
that appear most frequently among the top ten holdings of
fundamentally driven hedge fund portfolios that were not on the
list at the end of the first quarter. The hedge funds with the
largest number of actual shares are San Francisco-based
Farallon Capital Management and New York-based Paulson &
Co., the third- and fourth-largest shareholders, respectively,
with about five million shares apiece.
The stock rose to about $33.73 on Tuesday.
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