Smithfield Foods Inc. announced late Monday that it is selling 4.95 percent of its stock, or 7 million shares, to COFCO Ltd., China's largest agricultural trading and processing company.

The transaction will provide Smithfield with funds to pay down debt and cash to tide it over until the expected sale of its beef operations to JBS, analysts commented. That sale is expected to close in the third quarter of this calendar year.

COFCO's investment in the Virginia-based pork processor also helps "solidify a critical overseas relationship," noted Jonathan P. Feeney, food analyst for Wachovia Equity Research, in a commentary about the announcement. Beginning last fall, Smithfield has been exporting ractopamine-free pork to China.

The price of the shares will be determined in the next several days, at the same time as the terms of an offering of $350 million to $400 million in senior contingent convertible bonds. Smithfield also plans to use the proceeds of the bond offering, also announced late Monday, to pay down debt.

Investors initially were unimpressed by the stock sale, however. The company's shares fell below $18 per share, their lowest level in about five years, on Tuesday.

"I am very pleased that COFCO has agreed to make this equity investment in Smithfield. We have been working closely together, and this investment represents a significant step in cementing our relationship for the long term," C. Larry Pope, Smithfield's president and CEO, said in a statement posted on the company's Web site.

Smithfield has agreed to nominate Gaoning Ning, chairman of COFCO, for election as a director at its 2008 annual shareholders' meeting. COFCO's investment in Smithfield is passive in nature, and the purchase agreement contains standstill provisions.

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