A national security panel will vet the purchase of Smithfield Foods by a Chinese buyer for its effects on the food supply and proximity to military bases, though the review is unlikely to derail the deal, lawyers familiar with the process said.
“I don’t see deal-killer objections to this transaction,” said Stewart Baker, an attorney at Steptoe & Johnson LLP in Washington and a former Department of Homeland Security official. “The Obama administration doesn’t want to say no to every Chinese deal.”
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The review by the interagency Committee on Foreign Investment in the U.S., or CFIUS, will include scrutiny of Smithfield Foods facilities near military bases and other sensitive locations, said Stephen Mahinka, an attorney with Morgan Lewis & Bockius LLP, who, according to his firm profile, has won clearance from CFIUS for almost 40 deals.
The national security panel recently cleared Tokyo-based SoftBank Corp.’s proposed purchase of 70 percent of Overland Park-based Sprint Nextel.
In probing Smithfield’s acquisition by Shuanghui International Holdings Ltd., the panel will also look at the importance to the U.S. food supply of the Virginia-based company, the world’s biggest hog and pork producer, said Farhad Jalinous, a lawyer at Kaye Scholer LLP in Washington who represents companies in CFIUS cases.
“The integrity of the food supply chain gives rise to national security considerations,” Jalinous said. “Is this likely to be blocked? Not likely, but based on the conclusions the government makes about the risk profile, CFIUS could require a mitigation agreement to resolve perceived risks.”
Sen. Charles Grassley, an Iowa Republican, saying a sustainable food supply is critical to national security, urged CFIUS to consider issues such as the role the Chinese government plays in the Hong Kong-based acquirer.
“To have a Chinese food company controlling a major U.S. meat supplier is a bit concerning,” he said in a statement.
Grassley’s home state produces $4.1 billion of pork annually.
Closely held Shuanghui said in a statement Wednesday that it would seek the non-mandatory CFIUS review for the acquisition. Valued at $7.1 billion, including debt, the deal would be the largest Chinese takeover of a U.S. company.
Smithfield owns 460 farms and has contracts with 2,100 others across 12 U.S. states. Its holdings include Farmland Foods, which is headquarted in Kansas City. Another pork producing subsidiary is Murphy-Brown of Missouri, formerly Premium Standard Farms. It is based in Princeton, Mo.
CIFIUS, led by the Treasury Department, is also made up of representatives from the Justice, Homeland Security and Defense departments and five other agencies, any of which might have particular concerns about a takeover by a foreign buyer.
Chinese acquisitions that CFIUS has allowed to go through recently include Dalian Wanda Group’s $2.6 billion purchase of Kansas City-based AMC Entertainment Holdings Inc., creating the world’s biggest cinema owner in May 2012.