China's Shuanghui to buy US pork producer for $4.7bn

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Media captionThe BBC's Michelle Fleury says the deal is "significant for several reasons"

The biggest pork firms in China and the US plan to join forces in a $4.7bn (£3.1bn) deal that aims to feed the world's most populous country.

China's Shuanghui International has agreed to pay cash for the Virginia-based Smithfield Foods, which including debt, values the firm at $7.1bn.

The deal will be the largest takeover of a US company by a Chinese rival.

It also highlights the growing power of Chinese firms and their desire to secure global resources.

However, rival bidders may emerge since Smithfield has another 30 days to hold talks with other interested parties.

Thailand's Charoen Pokphand Foods, which is controlled by one of the country's richest men, says it considered bidding for the company.

Food scandals

Shuanghui's takeover bid is likely to be closely scrutinised by US regulators due to a series of Chinese food scandals, including the sale of tainted meat.

In 2011, China's state broadcaster CCTV revealed that Shuanghui's pork products contained the banned chemical clenbuterol, which makes the meat leaner.

However, one of China's most infamous foods scandals was in 2008, when six infants died and about 300,000 fell ill from tainted milk powder. It was later found to have contained melamine, an industrial chemical.

As a result of these scandals, there is increased demand among Chinese consumers for foreign food brands, which are viewed as a safer alternative to local products.

Shaun Rein, founder of China Market Research says Hong Kong-based Shuanghui is making a 'very good' purchase given their brand suffered reputational damage from the clenbuterol scandal.

"Having that American label is going to build trust with consumers," he said. "The number of pork imports grew 500% between 2010 and 2011. Despite the cooling economy in China, consumers are willing top pay premium on safe food."

'Business as usual'

Image caption Smithfield Foods is the world's biggest producer of hogs

Smithfield, which owns the Farmland, Armour and Healthy Ones brands, said the deal will allow the firm to expand the sale of its brands abroad.

"This is a great transaction for all Smithfield stakeholders, as well as for American farmers and US agriculture," Smithfield Chief Executive Larry Pope said in a statement.

"It will be business as usual - only better - at Smithfield. We do not anticipate any changes in how we do business operationally in the United States and throughout the world. We will become part of an enterprise that shares our belief in global opportunities and our commitment to the highest standards of product safety and quality."

Smithfield said it has accepted Shuanghui's bid of $34 per share for the company, which was more than a third higher than Tuesday's closing price.

The deal is expected to close in the second half of the year, after which Smithfield's will also cease to be publicly traded.

Shares of Smithfield rose more than 28% to close at $33.35 in US trade on Wednesday.

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