| NEW YORK, March 22
NEW YORK, March 22 Smithfield Foods Inc,
the largest U.S. hog producer, has hired Goldman Sachs Group Inc
to help it weigh options after a key shareholder urged
the company to break up, according to four people familiar with
Continental Grain, an agribusiness company which controls
about 6 percent of Smithfield, said in a letter earlier this
month that Smithfield should hire an independent bank to help it
analyze options including splitting into three companies,
instituting a cash dividend or bringing on new board members and
executives with new skills.
Smithfield, which has a market capitalization of roughly
$3.6 billion, said at the time that it would review the letter
in consultation with financial and legal advisers.
The company and Goldman Sachs declined to comment. The
sources asked not to be named because the matter is not public.
Continental Grain has called on Smithfield to split into
three businesses: selling pork and packaged meats, hog
production and international operations. Packaged meats is the
largest business segment, generating sales of $6 billion in
fiscal year 2012, or roughly 38 percent of the company's annual
Investors have said a break up of the company would improve
its trading multiple by freeing the high-margin packaged food
business from the capital-intensive hog production unit which is
also very volatile due to fluctuating feed costs.
While Smithfield is valued at around 6 times earnings before
interest, tax, depreciation and amortization (EBITDA), it may be
worth 6.9 times if the hog business is spun off, according to
Credit Suisse analyst Robert Moskow. The company's shares closed
Friday at $26.21.
Continental Grain, formed in Belgium in 1813 as a grain
trading firm, is now a large agribusiness investing firm. It
became a major shareholder in Smithfield in 2007.
The firm's chief, Paul Fribourg, quit Smithfield's board in
September 2009 over a disagreement with the company's plan at
the time to issue $250 million of common stock.
It is not clear what the investment firm's next steps are,
but a source familiar with the way Continental does business,
predicted that the firm would be prepared to recommend its own
slate of new directors if necessary. Continental Grain declined