UNITED STATES-IS SMITHFIELD ON THE MARKET.
Smithfield Foods Inc., the nation’s largest pork producer, could be ripe for a sale but a rumored sale price of $17 a share seems too high, an analyst said late Wednesday.
Shares of the Smithfield, Va.-based company rose 4 percent to close at $10.33 on Wednesday amid takeover speculation, said Ann Gilpin, an equity analyst with Morningstar. More than 6 million shares changed hands during trading, more than double the usual amount.
Investors were reacting to rumors that COFCO, China ’s largest national agricultural trading and processing company, was offering $17 a share for Smithfield , she said.
Smithfield did not immediately return a message left seeking comment. The company told Reuters in an e-mail that "COFCO is not offering to buy out Smithfield at $17 per share."
Gilpin said that statement seems too specific to fully shake off speculation, but that the supposed bid seems too high -- which is likely why shares did not rise higher on Wednesday.
"If this thing has any teeth on it the stock would have jumped close to $17," Gilpin said in an interview.
She said it makes sense that Smithfield would want to pursue a sale since the business is suffering amid a slump in the meat industry. But that doesn’t meant it would fetch that high of a price.
"Given the financial situation that this company is in, they’re obviously very highly leveraged and they’re losing money on a quarterly basis, for many quarters now," she said. "A deal could probably be done at a lower price."
Smithfield has been posting losses in the past year as it deals with a slump in the overall meat industry. The industry is hurting due to commodity prices that reached record highs last year coupled with weak demand and a supply glut that is depressing prices. Commodity prices have been dropping, so that will help boost margins. Pricing is improving as the industry cuts back on production.
Smithfield has also taken measures to change the focus of its operations, by boosting its packaged meats business, which is more profitable than its fresh hog business. In February, Smithfield announced it would cut 1,800 jobs and close six factories, including one in its hometown as it streamlines its business to focus more on packaged meats.