June 20, 2013
WASHINGTONCiting food-safety concerns, a bipartisan group of 15 senators urged a top government official to give the U.S. Food and Drug Administration (FDA) and U.S. Department of Agriculture (USDA) authority to review Shuanghui International Holdings Limited's $7.1 billion acquisition of Smithfield Foods, Inc.
Although the acquisition is said to be undergoing review by the Committee on Foreign Investment in the United States (CFIUS), President Obama has given Treasury Secretary Jacob Lew authority to designate other agencies to assume "primary responsibility" over the review, the senators wrote in a letter today to Lew. CFIUS has authority to review foreign deals to ascertain their impact on national security.
The deal, if approved, would make history as the largest acquisition of an American company by a Chinese business, according to Sen. Debbie Stabenow (D-Mich.), who chairs the Senate Agriculture Committee and signed the letter with her colleagues.
"We believe that our food supply is critical infrastructure that should be included in any reasonable person's definition of national security," wrote the senators, who included ten Democrats and five Republicans from the Senate Agriculture Committee.
"As such, we strongly encourage you to include the Department of Agriculture and the Food and Drug Administration in any CFIUS review of this transaction, and consider designating the Department of Agriculture as one of its lead agencies," the letter stated. "Further, any CFIUS review of this transaction should look beyond any direct impact on government agencies and operations to the broader issues of food security, food safety, and biosecurity."
FDA has been collaborating with the China Food and Drug Administration as part of a broad effort to improve the safety of imported foods and enhance China's regulatory regime.
Three percent of America's imported food comes from China, according to testimony last month from an FDA official, Steven Solomon, before the Congressional-Executive Commission on China. Solomon cited 40 "Import Alerts" related to food coming from China.
Keira Lombardo, Vice President of Investor Relations and Corporate Communications for Smithfield Foods, said the company welcomed "a full review and fair consideration" of the merger by the federal government.
"We believe the proposed combination does not present any national security concerns, is good for US farmers and agriculture and will advance US-China relations," she said in an emailed statement Thursday. "We will continue to provide Congress and CFIUS with all the information requested to allow a full and timely review of the combination."
Holly Shulman, a spokeswoman for the Treasury Department, declined to comment on the letter.
"By law, information filed with CFIUS may not be disclosed by CFIUS to the public," she said.
The acquisition was announced last month by Shuanghui International and Smithfield Foods, whose moniker derives from the centuries-old town in Virginia where it is headquartered. Shuanghui is assuming Smithfield Foods' debt and paying $34.00 per share for the company. As of April 28, Smithfield Foods held roughly $2.5 billion of debt.
With annual sales of $13.2 billion, Smithfield Foods is the world's largest pork processor and hog producer, according to a regulatory filing with the Securities and Exchange Commission (SEC).
Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development Co. The latter business is reportedly the largest meat processing enterprise and biggest publicly-traded meat products company in China based on market capitalization.
Smithfield Foods and Shuanghui International anticipate the acquisition will close in the second half of the year. However, a review by USDA and FDA could push back the closing date.
Reviews of mergers and acquisitions are "not under FDA purview", Shelly Burgess, a spokeswoman for the agency, said, declining to comment specifically on the letter.
A representative of USDA did not immediately respond Thursday to a request for comment.
The merger already is subject to review by the SEC, although the agency's role is limited to ensuring investors receive adequate disclosure in order to vote on a proposed deal.
"[F]ollowing the customary SEC clearance process", Smithfield Farms will ask its shareholders to vote on the deal at a special shareholder meeting, the company stated in its 10-K filing with the agency.
In the letter to Lew, who was appointed Treasury Secretary early this year, the senators raised broad questions over the consequences of foreign acquisitions of American food and agriculture companies and whether such deals are undergoing appropriate reviews.
"For instance, what measures should be considered to ensure that a company will maintain operations that comply with stringent American food safety and biosecurity standards," the lawmakers wrote. "What measures should be considered to ensure that taxpayer supported research and development and any resulting intellectual property are properly safeguarded? Should trends in foreign acquisitions also be monitored to ensure the ongoing integrity of key components of the American food supply?"
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