China Inc's Smithfield bid expected to pass Washington test

Fri May 31, 2013 2:49pm EDT
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By Michael Erman, Olivia Oran and Greg Roumeliotis

(Reuters) - Washington may still be digesting news of China Inc's latest bold move into America with the nearly $5 billion takeover of Smithfield Foods Inc SFD.N, but early indications are the deal will not inflame enough nationalistic opposition to kill it, and success could pave the way for more Chinese purchases.

Shuanghui International Holdings' agreement to buy Smithfield would be the largest ever acquisition of a U.S. company by a Chinese one. The bid - an effort to feed a growing Chinese appetite for U.S. pork - has stirred some concern among U.S. politicians and will face review by a Treasury committee.

To many dealmakers and executives, that review is procedural and should not set off alarms.

"I don't think the Smithfield deal will have problems," said David Marchick, who leads private equity firm Carlyle Group LP's (CG.O: Quote) government, public and regulatory affairs and was not involved in the deal. "It's not a sensitive sector. They are keeping American management. And the U.S. agricultural community would love to export more to China."

Carlyle, which has done several deals involving China, did not encounter any problems last year when it sold one of its portfolio companies, U.S. movie theater operator AMC Entertainment, to Chinese conglomerate Dalian Wanda Group, Marchick said. The $2.6 billion deal was the fifth largest M&A transaction by a Chinese company in the United States, according to Thomson Reuters data.

"Most Chinese acquisitions in the U.S. will not encounter regulatory or political challenges. Three or four deals a year do encounter problems - and garner all the attention," said Marchick, who has co-authored a book on U.S. national security and foreign direct investment.

The Smithfield deal could certainly still face opposition on Capitol Hill. Congress is out of session right now, and foreign policy hawks such as Senator Charles Schumer of New York and Senator John McCain of Arizona have yet to weigh in. Last week both Senators expressed concerns about the takeover of Sprint Nextel Corp (S.N: Quote) by Japan's SoftBank Corp (9984.T: Quote), due mainly to security concerns related to telecom equipment from China.

Chinese companies have become more comfortable looking to do deals in the United States, in spite of the 2005 rejection of China National Offshore Oil Corp's (0883.HK: Quote) $18.5 billion attempt to buy U.S. energy company Unocal. CNOOC's bid was thwarted by fierce political opposition because of national security concerns.   Continued...

A sign advertising Smithfield hams hangs at the Taste of Smithfield restaurant and gourmet market in Smithfield, Virginia May 30, 2013. REUTERS/Rich-Joseph Facun