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It is not shocking news that a Chinese company proposed to acquire a foreign company since the Chinese government has encouraged Chinese companies to take the path of “internationalization” for a long while.

However， people were still amazed when Shuanghui announced the ac- quisition of U.S.-based Smithfield with US$7.1 billion （including the debts of US$2.4 billion） at the end of May. They are shocked because of the facts including but not limited to：

1）， even though Shuanghui is the largest meat producer and processor in China， its target Smithfield the largest pig and pork supplier in the world is even bigger than Shuanghui （in 2012， Smithfield’s sales revenue was US$13.1 billion while Shuanghui’s was US$6.49 billion）； 2）， Shuanghui spent US7.1 billion on the deal， larger than its annual income； 3）， quite a few agricultural companies in China made the attempt of overseas acquisitions； and 4）， no Chinese company dared spend so much acquiring an American company.

But Shuanghui took the daring action The Chinese company promised to afford all debts of Smithfield. Analysts said that the deal， once finished， could save Smithfield from the current depression， and also teach Shuanghui the advanced experiences of international meat market， laying a foundation for its path to become an internationalized company.

Such a “win-win” result. That’s why the stock price of Shuanghui and Smithfield increased drastically after the announcement of the deal.

Eventful Acquisition

“Exciting results could never be gained without eventful process” this is the best description of Shuanghui’s acquisition of Smithfield.

Though it is widely believed that the acquisition could be good for both sides， the acquisition did not go well as Shuanghui’s maybe Smithfield’s wishes. The first obstacle comes from the two rivals that also want to absorb Smithfield into their own bodies as well.

These two companies are Chia Tai Group from Thailand and JBS Group from Brazil. A source close to the deal said that Smithfield had the right to talk with Chia Tai Group and JBS about acquisitions in the following 30 days after the announcement.

Analysts said that the two companies could not stop Shuanghui-Smithfield deal. The Thai company might not offer as much as Shuanghui， while the Brazilian company has to be rid of the suspect of monopolization.

Shuanghui also seems to be very confident in defeating the two rivals. Its board chairman Wan Long said that no companies could get in the way of Shuanghui’s acquisition of Smithfield and the company is going to increase the of- fer if necessary.

The rivaling companies are actually the smallest hurdle. The first jumping in the way of acquisition （Chia Tai and JBS excluded） is one of Smithfield’s major shareholders Starboard Value LP.

This fund owned 5.7% of Smithfield’s shares. Apparently， it was not satisfied with the deal value and thus advised to dissemble Smithfield into three parts： pork processing in America， pig feeding and international sales of fresh and packaged meat， after which the three parts could be sold one by one meaning larger yield for shareholders.

“Through this method the value of each share of Smithfield could reach 44-55 US dollars， much higher than the US$34 per share in the current deal，”said Starboard Value in a public letter.

Both Shuanghui and Smithfield rejected to comment on the advice， and since Shuanghui could increase its offer to defeat any potential rivals， it might nod to Starboard Value’s request if it really blocks the acquisition.

Another major obstacle comes from the state governments of the United States. Eight states have the rules， forbidding foreign investors’ownership of land in their territory. Unfortunately， Smithfield has pig farms， farmland， waste disposal plants and other land-based assets in these states. If Shuanghui were not allowed to own these assets， it would definitely suffer great loss from this deal.

The last but not the least obstacle consists of the lawyers from China and U.S.， who think that the deal is undervalued and question its fairness. By the end of June， there are at least 9 lawyer firms in China and America saying that the deal failing to meet the principle of loyalty. They plan to advise the U.S. and Chinese government to launch an investigation into the deal to keep sharehold- ers of Smithfield from any potential damages.

Mutual Benefits

The deal is highly expected by the two companies. For Smithfield， Shuanghui could be a savior for its downward business. From 2009 to 2010， the companies suffered great losses and had not reclaimed the lost wealth in 2011 and 2012. The main reasons are the saturated pork market in the U.S. and the shrinking consumption power of American people.

The cooperation with Shuanghui could bring the Chinese pig and pork market to Smithfield. In addition， the Chinese meat market is far from scale production （presently， two thirds of the pork is provided by individual feeders instead of big companies）.

Larry Pope， CEO of Smithfield， said that his company began to talk with Shuanghui from 2009. “We have known each other for long and understood that we can complement each other，” he said. “Our efforts will prove to be very fruitful and will get us unparalleled advantages in both China and America.”

In addition， Shuanghui promised to remain Smithfield’s independence after the acquisition. It does not need to change its operating style， management， brands and headquarters， All staff will be kept and no factories will be closed. The partners in the U.S. will have their partnership with Smithfield unchanged.

This deal was facilitated by Morgan Stanley， which provided enough capital for Shuanghui to finish the deal. After solving the most haunting problem， Shuanghui finally got close to the success.

Then， is this deal worthy of Shuanghui’s long and continuous efforts regardless of so many difficulties？

Wan Long， and many agricultural experts， believed so. As Wan Long said，the internationalization is the only way for Shuanghui to continue its development. “We all know that the Chinese meat market is still less advanced than the world level. We need to know how foreign meat suppliers work to bring the order to the Chinese market.”

Experts also applauded Shuanghui’s attempt to acquire Smithfield， though they hold different opinions towards the benefits from the deal. In their opinion， Shuanghui， the largest meat supplier in China， is still far from taking control of the meat market in this country. The rising rivals like Yurun have already challenged Shuanghui’s leading position. And there are thousands of individual pig and pork suppliers who take two thirds of the market.

“To get rid of these individual suppliers will take a lot of time and capital for Shuanghui，” said an agricultural expert. “It is even more costly than acquiring Smithfield. In addition， acquiring Smithfield gives Shuanghui the access to the U.S. market， which it has desired for long.”

The greater advantage of this deal is what Shuanghui can get from Smithfield. In the past dozen of years， Shuanghui had to struggle against the frequent claims against the water-injected pork， hormone-driven meat and so on. It is not exaggerated to say that Shuanghui plays an ungracious role in the questionable food safety in China.

Therefore， Shuanghui could learn how to scientifically supply meat to consumers from Smithfield. As an international company， Smithfield has abundant experiences in the entire industrial chain. It perfectly comprehends and controls all links， including feeding， butchering， processing， transportation and sale， to ensure that the meat eaten by consumers is safe in quality and excellent in taste.

For example， Smithfield has a com- plete set of methods of feeding pigs， which could greatly lower the cost of pork. In the United States， the cost of pork was 9.5 yuan per kilogram in 2012， while in China the figure was over 17 yuan. If Shuanghui could learn how to lower the cost of feeding pigs， it will be of great importance for its competition in China.

“We spend so much in acquiring Smithfield not for letting more people know Shuanghui. We do this for the better of ourselves and the Chinese meat market，” said Wan Long. “We can bring the best meat in the U.S. to China without increasing the price. Our ultimate goal is to build a world-level empire of meat. We hope that our efforts could bring benefits to all Chinese consumers.”

Bigger Significance

Shuanghui’s acquisition of Smithfield is more than a single deal. As Bloomberg pointed out， behind the deal is China’s desire for agricultural resources.

Previously， Chinese enterprises usually targeted minerals， energy and other industrial resources during their overseas acquisitions. Very few agricultural companies have gone out to acquire foreign assets.

In recent years， the agriculture in China is facing increasingly serious problems. China has shifted from a food exporter to a food importer； the numerous food safety issues are challenging people’s trust into the government； the water problem and the frequent natural hazards test the stable supply of food in China， which is the base for a country’s survival and development.

“The overseas acquisitions can bring China a lot of agricultural resources and advanced experiences of management，” said Doug Ferguson， partner of KPMG in Australia. “I have contacted with 25 agricultural enterprises in China and know that they are longing for investment in basic agriculture， food processing and production.”

Last year， the Australian government approved the deal of selling Australia’s largest cotton supplier to a Shandong-based company at US$235 million year. A few months before that， Chinese food giant Bright Group spent 1.2 billion pounds acquiring 60% shares of Britain-based Weetabix.

Greg Armitage， an agricultural analyst at PricewaterhouseCoopers， said that “China wanted not only agricultural resources， but also technologies for its agricultural modernization. Actually， acquiring agricultural companies from developed countries is the fastest way to get access to modern agricultural technologies.” More Chinese enterprises will follow Shuanghui and Bright Group to start acquiring overseas agricultural assets in the future.

“Chinese people always say that they successfully feed 20% of the global population with 7% of the farmland in the world. But we have to admit that the stress is growing stronger and stronger，”said an anonymous governmental official at the Ministry of Agriculture. “The agricultural modernization， which is an important part of our 12th Five-Year Plan， needs to be accelerated as much as possible. Acquiring overseas resources and technologies is doubtlessly of great help.”

Additionally， it is worthwhile to mention that soon after the announcement of the deal， Chinese president Xi Jinping went to the United States to meet U.S. president Obama. One of the main topics of the two leaders’ conversation is about the free trade between two countries.

The deal is thought to be a gift for the presidential meeting by some Chinese people. This might be a subjective opinion， but no one can deny the positive signal this deal has delivered to the Sino-U.S. economic relationship. As both countries’ leaders said， the economic and trade cooperation between the largest developing country and strongest developed country will form a great force in the world.