UPDATE 2-Continental Grain heads toward Smithfield proxy fight

Thu Apr 25, 2013 4:04pm EDT

By Martinne Geller

April 25 (Reuters) - Continental Grain Co, a large shareholder in Smithfield Foods Inc, moved toward a proxy fight with the meat company on Thursday, saying it will seek shareholder support in connection with a turnaround plan it says could lift Smithfield's shares to $40 in three years.

In a presentation filed on Thursday with U.S. securities regulators, Continental repeated its view that Smithfield should split into three companies, use the proceeds to buy back shares, restructure its business, and institute a dividend in line with peers. It should also immediately add three new directors, Continental Grain said.

Continental said it plans to file a proxy statement with the Securities and Exchange Commission and to solicit shareholder proxies in connection with Smithfield's annual meeting. A source familiar with the matter said Continental intends to nominate a slate of directors for the board.

A share price of $40 for Smithfield would represent a rise of 54 percent from the company's closing price of $25.92 on Wednesday.

Smithfield confirmed receipt of Continental's presentation, but said Continental's analysis of the benefits of a breakup is "inherently flawed, based on an intensive and ongoing review of these and other alternatives by the board, management and our financial and legal advisers."

Smithfield said it is committed to reviewing "all alternatives to increase long-term value for all shareholders."

Continental sent Smithfield a letter in March urging a breakup. On April 1, Smithfield said that separating its hog production, international and packaged meats businesses would make it less competitive.

Continental said on Thursday that Smithfield's answer was "inadequate and a continuation of an unacceptable status quo."

Continental Grain was formed in 1813 as a grain trading firm in Arlon, Belgium, and expanded into the flour milling business in the 1890s. The founding Fribourg family relocated to the United States after World War 2.

The company became a major shareholder in Smithfield in 2007 with Smithfield's acquisition of Premium Standard Farms.

Paul Fribourg, who runs Continental, quit Smithfield's board in 2009 over a disagreement with the company's plan at the time to issue $250 million worth of shares of common stock.

Smithfield shares were up 1.4 percent at $26.28 in afternoon trading on the New York Stock Exchange.

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