By Denny Thomas
HONG KONG (Reuters) - China's Shuanghui International agreed on Wednesday to buy Smithfield Foods for $4.7 billion in cash, in a deal that will increase the flow of U.S.-made pork to the world's largest consumer of the meat.
The agreement comes after Smithfield's largest shareholder agitated for change at the company, including a call to break up the Virginia-based pork producer.
The deal will be subject to review by the U.S. Committee on Foreign Investment, Smithfield said in a statement, which will come at a time of testy relations between the U.S. and China on matters of cross-border transactions.
China is also the third-largest market for U.S. pork - a brand of meat in high demand lately, as China suffers through another series of embarrassing food safety scandals, involving everything from rats to pigs.
The price of Shuanghui's offer is $34 per share, a 31 percent premium to Smithfield's stock price. Shuanghui will assume $2.4 billion of Smithfield's debt
Shuanghui has promised to maintain Smithfield's operations, staff and management. The thrust of the deal is to send the U.S. made pork to China, a factor that one person familiar with the matter said would help during Shuanghui's CFIUS review.
Privately owned Shuanghui plans to fund the acquisition using debt, the person added, with both Chinese and foreign banks providing loans.
Continental Grain Co, which owns a 5.8 percent stake in Smithfield Foods, has been agitating for change. Last month it sent management a letter, urging the company to break itself up into three independent companies, to unlock shareholder value.
Continental, Smithfield's biggest shareholder, said in an April presentation that Smithfield should split into three companies, use the proceeds to buy back shares, restructure its business, and institute a dividend in line with peers.
Food safety and environmental pollution are chronic problems in China and public anxiety over cases of fake or toxic food often spreads quickly.
In March, more than 16,000 rotting pigs were found floating in one of Shanghai's main water sources, triggering a public outcry. Over-crowding at pig farms was likely behind the die-off and their disposal in the Huangpu river.
The public security ministry said police had confiscated more than 15 metric tons (16.54 tons) of tainted pork in Anhui province, although as much as 60 metric tons had been sold in Anhui and Fujian provinces since mid-2012.
Chinese police broke a crime ring earlier this month that passed off more than $1 million in rat and small mammal meat as mutton.
According to Wednesday's statement, Shuanghui International is the majority shareholder of Henan Shuanghui Investment & Development Co. , which is China's largest meat processing enterprise and China's largest publicly traded meat products company as measured by market capitalization.
Barclays is the financial advisor to Smithfield and Simpson Thacher & Bartlett LLP and McGuireWoods LLP are serving as legal counsel. Morgan Stanley is financial advisor to Shuanghui and Paul Hastings LLP and Troutman Sanders LLP are serving as legal counsel.
(Reporting by Denny Thomas; Editing by Michael Flaherty)