Source:  Tom Johnston, MEATINGPLACE, 6/3/11

Smithfield Foods Inc. said today its declining stock price and continued economic struggles in Europe prompted the company to call off its proposed takeover of Spain’s Campofrio Food Group S.A.
The world’s largest pork producer, which already owns 37 percent of Campofrio, had been working with Campofrio executive Pedro Ballve in a joint takeover bid of the remaining shares for an estimated €500 million ($716.2 million).

“Our decision has been influenced by numerous factors including continued adverse economic conditions in Europe that show few signs of abating, and the recent decline in our stock price, which has made the proposed transaction more difficult to finance on a basis that is accretive to our shareholders,” Smithfield Foods President and CEO C. Larry Pope said in a news release.

Pope added that Smithfield, Campofrio’s largest shareholder, will maintain its 37 percent stake and continue to support the Spanish packaged meats company’s growth for the companies’ mutual benefit.
Smithfield’s stock price saw a high of $24.93 and a low of $13.34 in the last 52 weeks. The stock closed Thursday at $19.85, its lowest price since Jan. 19. It was trading at $20.08, up 23 cents, in morning activity Friday on the New York Stock Exchange.

A boost for Smithfield
In a brief note to investors, Stephens Inc. analyst Farha Aslam said that Smithfield's withdrawal was a positive for the U.S. company.

"The Campofrio transaction had significant execution risk given the deal would have required a restructuring in a foreign country in a difficult economic environment. Furthermore, the proposed equity offering has weighed heavily on Smithfield’s share price," she wrote.

Also, she observed that Smithfield’s core business would benefit from greater management attention and access to capital, especially its the Hog Production Group. And she noted that Smithfield is generating significant free cash flow which can be used to pay down debt.

Similarly, DeutscheBank's Christina McGlone observed in a note to investors that the announcement "exhibits strong discipline by management, and reflects a focus on fundamentals of the base business (pork restructuring, HPG cost saving initiatives)."

McGlone noted that she maintained her "hold" rating on the stock due to tightening hog supplies and sluggish demand at retail, which promise to squeeze margins.

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