Smithfield Bosses to Pocket $85.4 Million From Chinese Deal

May 31, 2013 10:00 AM
 

(Updates with share price in fifth paragraph.)

 

May 31 (Bloomberg) -- Smithfield Foods Inc. executives, who run one of the worst-performing large U.S. food makers over the past five years, are set to reap at least $85.4 million from its sale to China’s Shuanghui International Holdings Ltd.

The company has been under pressure from its biggest shareholder for lagging behind competitors Hormel Foods Corp. and Tyson Foods Inc. Continental Grain Co., which has a 6.8 percent stake, said in March that Smithfield should appoint new managers and break itself into three businesses as rising animal-feed costs made its hog-production unit unprofitable.

The total payout is based on the stock and share options held by Smithfield’s five top executives, according to data compiled by Bloomberg. Among the managers, Chief Executive Officer C. Larry Pope owns stock valued at $25.4 million based on the $34-per-share offer price, according a May 17 filing.

Pope would also get $11 million for his share options, according to Smithfield’s most recent proxy filing in August, which based its calculation on control of the company changing on April 29, 2012. The stock on that date was 38 percent less than the price that China’s biggest pork producer agreed to pay this week. The other four executives also stand to get paid out on their options.

Keira Lombardo, a Smithfield spokeswoman, declined to comment on the payouts. Smithfield rose 0.4 percent to $32.87 at 9:42 a.m. in New York.

 

No Dividends

 

The Smithfield senior managers, among the best-paid in their industry, will stay on after the takeover, the company said March 29 when it announced the takeover.

That’s despite Smithfield posting a negative return of 18 percent in the five years through March 28, the second-worst performance of any U.S. food company with annual sales of $10 billion or more, according to data compiled by Bloomberg. Grain trader Bunge Ltd. was the worst in the period.

Continental said in a March 7 letter it had urged Smithfield management and the board during the last seven years to focus on creating value for investors, who have seen "very little benefit" from the progress the company has made. During that time, Smithfield paid no cash dividends while Tyson has cumulatively paid $429 million and Hormel paid $728 million, Continental said.

Smithfield Executive Vice President Joseph W. Luter IV, a descendant of the family that founded the Smithfield, Virginia- based company, has stock valued at $21.1 million. He would get a $1.1 million payment on his options, according to the August proxy filing.

 

Termination Payments

 

Chief Financial Officer Robert Manly has $13.4 million of stock and would get a change-of-control payment of $5.3 million, filings show. The other executives are Chief Operating Officer George Richter and Joseph Sebring, president of the company’s John Morrell unit.

Chairman Joseph W Luter III, Luter’s father and Pope’s predecessor as CEO, has $30 million of stock.

The five executives stand to get even more if their employment is terminated during the takeover or within two years of the change of ownership, according to the August filing. In that case, total compensation and share sales would be at least $126.4 million.

Pope, 58, got total compensation of $16.5 million last year, according to data compiled by Bloomberg. The CEO, Manly, Richter, and Joseph Luter received a combined $41.5 million last year. That’s the most for any group of senior managers at a U.S. food company except those at Deerfield, Illinois-based Mondelez International Inc., according to data compiled by Bloomberg.

 

460 Farms

 

Buying Smithfield would give closely held Shuanghui control of a company that owns 460 farms and the Smithfield, Farmland and Eckrich packaged-meat brands. Smithfield’s livestock unit raises about 15.8 million hogs a year, according to the company’s website.

The deal needs approval from Smithfield shareholders and regulators including the Committee on Foreign Investment in the U.S., and is expected to close in the second half.

 

--With assistance from Jeff Green in Southfield, Michigan and Shruti Date Singh in Chicago. Editors: John Viljoen, Andrew Hobbs

 

To contact the reporters on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net; Simon Casey in New York at scasey4@bloomberg.net

 

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Simon Casey at scasey4@bloomberg.net

 

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