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Shareholder suggests Smithfield split up the company
Story Date: 3/11/2013
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Source: MEATINGPLACE, 3/8/13
A large shareholder is recommending Smithfield Foods Inc. hire an adviser to consider splitting the company into three independent businesses, saying the stock has performed poorly while management has been well compensated.
The letter from Continental Grain Co. to Smithfield’s board of directors, revealed in a regulatory filing late Thursday, recommends splitting the company into three pieces – hog production, fresh pork and packaged meats, and international – to unlock shareholder value.
“It’s time for Smithfield to get serious about creating shareholder value,” the letter said.
Smithfield, in a statement Friday, said it would review the Continental Grain memorandum in consultation with its financial and legal advisers.
Continental Grain, a Smithfield shareholder for seven years, noted Smithfield’s hog production segment has produced negative returns in three of the past five years and uses significant amounts of the company’s capital.
Smithfield’s stock has declined by 26 percent since its current management took over in August 2006, while competitor Tyson Foods’ stock has returned 70 percent, including dividends, and Hormel Foods’ shares returned 131 percent, including dividends, the letter said.
Continental urged Smithfield to initiate a regular cash dividend along the lines of what Hormel or Tyson pay out. The letter further recommended Smithfield add to its board of directors several people with strong backgrounds in agribusiness management, branded consumer packaged goods and value creation.
Management compensation should be tied to shareholder value creation, Continental said, noting Smithfield Chief Executive C. Larry Pope has received $37 million in total compensation over the past two years. Last year, Smithfield stock fell 11 percent with the Standard & Poor’s 500 index rose 16 percent.
“There is clearly a disconnect in the current compensation plans,” the letter stated.
Continental Grain also urged Smithfield to develop a strategy for the China market that includes long-term supply agreements for U.S. pork, marketing Smithfield brands in the country, and partnering with Chinese companies.
The shareholder letter follows the release Thursday of Smithfield’s third-quarter earnings, which rose 3.2 percent. Pope, on the conference call following the earnings report, said small acquisitions and increased spending on marketing as well as capital improvements would help the company “dramatically improve” it profitability over the next several years.
After the earnings release, Stephens Inc. analyst Farha Aslam raised her rating on Smithfield stock to “overweight” from “equal-weight,” saying the market would likely value the company more on its increased potential for deals, prompted by the shareholder activism.
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