China Inc.’s Smithfield bid expected to pass Washington test

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Reuters / Washington may still be digesting news of China Inc.’s latest bold move into America with the nearly $5-billion takeover of Smithfield Foods Inc., but early indications are the deal will not inflame enough nationalistic opposition to kill it, and success could pave the way for more Chinese purchases.

Shuanghui International Holdings’ agreement to buy Smithfield would be the largest-ever acquisition of a U.S. company by a Chinese one. The bid — an effort to feed a growing Chinese appetite for U.S. pork — has stirred some concern among U.S. politicians and will face review by a Treasury committee.

To many dealmakers and executives, that review is procedural and should not set off alarms.

“I don’t think the Smithfield deal will have problems,” said David Marchick, who leads private equity firm Carlyle Group LP’s government, public and regulatory affairs and was not involved in the deal. “It’s not a sensitive sector. They are keeping American management. And the U.S. agricultural community would love to export more to China.

“Most Chinese acquisitions in the U.S. will not encounter regulatory or political challenges. Three or four deals a year do encounter problems — and garner all the attention,” said Marchick, who has co-authored a book on U.S. national security and foreign direct investment.

Only a handful of lawmakers — notably Charles Grassley, Republican Senator from Iowa, the largest U.S. hog-producing state — have expressed doubts.

“No one can deny the unsafe tactics used by some Chinese food companies. And, to have a Chinese food company controlling a major U.S. meat supplier, without shareholder accountability, is a bit concerning,” Grassley said in a statement.

Aaron Schock, an Illinois Republican and a member of the House subcommittee on trade whose district includes several hog farms, raised concerns about food safety. “We have to be cautious that a Chinese-run firm wouldn’t result in Chinese standards here in the U.S.,” he said. “The safety of the consumer is the utmost concern and if that can’t be dealt with, then this deal might be for naught.”

The National Farmers Union, which mostly represents family farms and co-ops, said it opposed the deal out of concerns about concentration in the agricultural markets. “Now, in one fell swoop, 26 per cent of U.S. pork processing and 15 per cent of domestic hog production will be controlled by a foreign company,” it said in a statement.

Shuanghui has promised not to close or move any of Smithfield’s operations and will keep current management, including CEO Larry Pope, in place.

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