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CIP School in the Phils.

“WHO” IS BUYING ‘AMERICA”

on May 31, 2013

 

 

http://www.engdavao.com

For Wan Longthe $4.7bn deal to take over US pork producer Smithfield is a long way from the Shuanghui International chairman’s simple beginnings.

“What I do is kill pigs and sell meat,” he told a local paper last year.

A native of Luohe in Henan province, home to the group’s headquarters, he joined Shuanghui as an ordinary factory worker in 1968 after a stint in the army. It was a single money-losing plant, ranked ninth out of 10 state-owned meat processing companies in Henan, according to the Chinese magazine Caixin.

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Mr Wan, now in his early seventies, was elected plant manager in 1985. That year it reported profits of Rmb5m, the magazine said.

He now runs a business that turned a net profit of Rmb2.9bn last year. As China’s biggest meat producer, it produces 2.7m tonnes of meat annually from 30m pigs. It also gets through 300,000 heads of cattle, 600,000 tonnes of chicken, 50,000 tonnes of eggs and 50,000 tonnes of soy protein in processing pork into an array of cooked, fresh and frozen products.

“Our goal is to achieve sales revenue of Rmb100bn within the period of the 12th five-year plan [ending in 2015], then I’ll retire,” Mr Wan told Caixin in an interview two years ago.

Shuanghui is forecast to hit Rmb50bn ($8.2bn) in sales this year, according to Bloomberg data, while Smithfield should generate $13bn – so this deal will help Mr Wan hit his target two years early.

It is by far the largest takeover ever pursued by a Chinese company overseas in the food and beverage sector, according to Dealogic.

Given China’s population and its growing appetite for a higher protein diet as it becomes wealthier, bankers expect to see many more deals for meat, fish and dairy producers. The past decade was about China’s hunt for energy and metals, but the next could well be about its need to secure safe food supplies.

“This deal looks like a wonderful opportunity for two complementary companies to come together and for Shuanghui to access the technology it needs to take its food safety and productivity to a higher level,” says a Beijing based agri-industry expert.

The homespun charm of the companies’ two executives appear to complement each other as well, with Mr Wan’s simple take on the pig industry chiming with words from Larry Pope, Smithfield’s chief executive. “We’re not exporting tanks and guns and cyber security,” he said on Wednesday in assessing concerns about US regulatory intervention. “These are pork chops.”

Mr Wan told another Chinese newspaper that he did not smoke, did not drink and was focused only on running his company. He blamed himself for the pounding Shuanghui took in the media after state television claimed the group was using illegal additives – clenbuterol hydrochloride – to induce faster growth in its pigs.

“Foreign brands are trusted by domestic consumers with their advanced management experience and premium brands,” said Jian Aihua, analyst at CI Consulting. “So we can expect such co-operation between domestic food companies and foreign companies can help to win back the consumers’ trust.”

The clenbuterol episode accelerated the group’s efforts to boost its international reach. Mr Pope told investors on Wednesday that Smithfield had been talking to Shuanghui since 2009.

A former US Department of Agriculture official in Beijing recalls Mr Wan approaching them after an unsatisfactory trip to South America.

“Mr Wan had definitely decided that he needs overseas supply,” the official says. “He saw the future and realised that China can’t supply all their pork needs. And it was after that that the clenbuterol scandal broke, so I’m sure that expedited his plans.”

Now the former factory worker really is bringing home the bacon.

 

 

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