Smithfield relisting serves up IPO risk with a side of bacon

{"text":[[{"start":9,"text":"The market for new listings reheated somewhat in 2024, but has yet to fully crisp up. "},{"start":14.367,"text":"China’s WH Group hopes it can help: by relisting US pork producer Smithfield Foods. "},{"start":19.834,"text":"WH ought to keep its expectations lean. "}],[{"start":23.65,"text":"WH, the world’s biggest pork purveyor, took Virginia-based Smithfield private in 2013. "},{"start":29.991999999999997,"text":"At the time, its $34 a share cash offer valued Smithfield’s equity at $4.7bn and represented a hefty 31 per cent premium over the prior day closing price. "},{"start":40.384,"text":"Now it is looking to sell up to 20 per cent of the company, and return it to US investors’ portfolios. "}],[{"start":47.06,"text":"Back then, paying top dollars for America’s biggest pork processor might have been justified by expectations that China’s growing middle class — tired of repeated food safety scandals — would stump up for safer American meat products. "}],[{"start":59.790000000000006,"text":"But that narrative didn’t quite pan out. "},{"start":62.269000000000005,"text":"Exports to China took a hit after President Donald Trump’s trade war during his first term prompted Beijing to retaliate with a 25 per cent tariff on all US pork products. "},{"start":71.62400000000001,"text":"A second Trump administration could further inflame this. "},{"start":74.72900000000001,"text":"The Chinese economy’s post-Covid slowdown has emerged as an additional challenge. "}],[{"start":80.15,"text":"Culturally, Chinese consumers prefer to buy fresh — rather than frozen — pork, giving an edge to ​​domestic producers. "},{"start":87.47900000000001,"text":"Packaged pork products — like the American-style bacon and lunch meats that make up a big chunk of Smithfield’s sales in the US — never quite took off in China. "}],[{"start":96.96000000000001,"text":"With little apparent overlap between the two companies, small wonder WH is looking to relist Smithfield in the US again. "}],[{"start":null,"text":"

"}],[{"start":104.77000000000001,"text":"Yet the Smithfield being taken public is geographically smaller than when WH bought it over a decade ago. "},{"start":111.02400000000002,"text":"WH carved out the company’s European operations in August and kept it as one of its subsidiaries. "},{"start":116.52900000000001,"text":"The Smithfield on offer is made up of just the US and Mexico businesses. "},{"start":120.73400000000001,"text":"And performance has been lumpy. "}],[{"start":123.55000000000001,"text":"Smithfield’s packaged meat division is much more profitable than it was in 2014 — its operating margin has more than doubled to 15 per cent in the first nine months of 2024. "},{"start":133.704,"text":"Yet the similarly sized fresh pork business has a margin of just 3 per cent. "},{"start":137.90900000000002,"text":"Its hog farming division has struggled with high feed prices and oversupply. "}],[{"start":null,"text":""}],[{"start":142.47000000000003,"text":"Lower grain costs will help improve the bottom line for 2024. "},{"start":146.69900000000004,"text":"Even so, a pure play on American and Mexican appetite for pork is a tough sell — especially one that will remain controlled by its Chinese parent. "},{"start":154.74200000000002,"text":"Shares in rival meat packers and producers such as Hormel Foods and Tyson Foods have underperformed the wider market. "},{"start":160.78400000000002,"text":"Brazilian meat giant JBS’s plans for a US listing have suffered repeated delays. "}],[{"start":166.19000000000003,"text":"In a market that has gone wild for artificial intelligence and speculative technologies, Smithfield is at least serving a familiar business model that customers and investors can get their teeth into. "},{"start":176.18200000000002,"text":"Its valuation will just need to reflect that reheated bacon isn’t to everyone’s taste. "}],[{"start":180.58000000000004,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/187913-1736523776.mp3"}