Last month China’s Shuanghui International Holdings proposed a takeover of Smithfield (NYSE:SFD), the world’s largest pork processor and hog producer, spurring controversy over the concern regarding U.S. companies being purchased by foreign entities. While the Committee on Foreign Investment in the United States (CFIUS) holds significant sway over the process, experts believe that the powerful panel will not represent a significant roadblock to the acquisition, even if members of congress are concerned, USA Today reports.
The CFIUS is tasked with reviewing the impact of foreign purchases of American companies when it comes to national security, being given the authority in 1988. Headed by the Treasury secretary and consisting of members from the departments of Justice, Homeland Security, and Energy, and five other agencies, it is a largely secretive government panel that nonetheless has considerable sway. While the panel does not reject deals itself, it is responsible for informing companies as to whether they intend to recommend to the President of the United States whether the deal should be blocked.
When the deal between Smithfield Foods and Shuanghui was announced on May 29th, Larry Pope, the chief executive of Smithfield, told investors it was planning to file with CFIUS “out of an abundance of caution.” However, generally CFIUS is only concerned when it comes to issues of national security. Lawyers representing firms that have gone through the process of dealing with the panel say that they are much more likely to stop a pending acquisition when it involves issues relating directly to national security such as fighter-jets or encryption software.
The concern lawmakers have for the impending takeover revolves around China’s food-safety scares over the last several years. Two years ago Shanghui sold pork that contained a banned feed additive and lawmakers are concerned that the acquisition could lead to potentially unsafe food products in the United States. Senator Debbie Stabenow, D-Mich., stated that ”the agencies responsible for approving this possible merger must take China’s and Shuanghui’s troubling track record on food safety into account, and do everything in their power to ensure our national security and the health of our families is not jeopardized.”
Issues CFIUS is likely to take into account include proximity between Smithfield plants and sensitive military bases or a possible disruption of food shipments to U.S. military. Sen. Chuck Grassley, R-Iowa, also explains that sustainable food supply is critical to national security while the lack of “share-holder accountability… is a bit concerning.”
However, the issues CFIUS will look into will likely have little to no bearing on the outcome of the takeover.
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