American Pork: Falling into the Hands of Chinese Industry
American Pork: Falling into the Hands of Chinese Industry
The shortsighted sale of Smithfield Foods

In what could be the single biggest takeover of an American company by a Chinese entity, more than a quarter of American pork production may soon fall into Chinese hands.

In May, after years of negotiations, Hong Kong-based Shuanghui International announced that it was ready to buy the world’s largest pork producer, Virginia-based Smithfield Foods. The companies say the merger will benefit everyone: Chinese producers will modernize production, and U.S. farmers can expect more demand.

At a purchase price of $4.7 billion plus accumulated debt, it’s a sweetheart deal for Smithfield’s leadership, who gain lucrative stock options and a 31 percent increase in share prices.

But according to Bob Marshall, a Delegate in Virginia’s General Assembly, Smithfield’s board is blinded by dollar signs. Marshall says that while majority shareholders will win big, the American public will suffer.

“I don’t think this serves the common good or the common stockholder of Smithfield, nor does it serve Smithfield’s corporate responsibility to their customers,” Delegate Marshall said. “They didn’t get that big without customers. That is being abandoned right now.”

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In a letter to Smithfield CEO Larry Pope, Marshall warns that China’s infamous history of food safety scandals will hurt the company’s reputation, and put the jobs of over 46,000 Smithfield employees in jeopardy. 

“China’s widespread food safety problems are known to American consumers and will engulf Smithfield Food products regardless of the names under which they are sold,” Marshall wrote.

Since the deal was announced, Marshall has written several letters—to Virginia’s AFL-CIO, to the local Chamber of Commerce, and to several state and federal lawmakers—explaining why the deal is dangerous, and rallying support for an alternative solution.

Marshall, a Republican, wants employees to take over the company. He outlines an Employee Stock Ownership Plan (ESOP), where banks would issue a loan to pay off current stockholders. Instead of a foreign company, Smithfield workers would become the owners.

“If every worker out there becomes an owner thanks to this financing plan, they’ll have a more innate pride,” Marshall said. “They’re going to have more dedicated workers, and the money and the wealth will stay here.”

“This is where the left and right can come together, both for the workers and for the country at the same time.” 

Historic Ham and National Security

Smithfield, Va. has been renowned for its ham since before the United States was founded. Smithfield the company began in 1936, and through a series of acquisitions, it has become a powerful enterprise that now dominates American hog production.

But there’s more to Shuanghui’s buyout than just another merger. The Committee of Foreign Investment (CFIUS) is in the process of examining what the American public stands to lose if Chinese ownership were to take hold. 

CFIUS (comprised of members from the U.S. Treasury, Justice Department, and other agencies) is prohibited from discussing a case under evaluation, but key legislators are urging the committee to consider the consequences beyond company promises. 

“[CFIUS] must take China’s and Shuanghui’s troubling track record on food safety into account,” Sen. Debbie Stabenow (D-MI.) said in a June 5 statement. “Just two years ago, Shuanghui International admitted to putting illegal additives in its food products. Earlier this year, more than 9,000 dead hogs were found floating in a river in Shanghai after having been dumped there by farmers after the hogs contracted disease.”

“No one can deny the unsafe tactics used by some Chinese food companies, and, to have a Chinese food company controlling a major U.S. meat supplier, without shareholder accountability, is a bit concerning,” Sen. Chuck Grassley (R-IA) said in a May 29 statement. 

Today, Shuanghui shares are owned primarily by investment firms such as Goldman Sachs, but the once state-sponsored company still has strong ties to the Chinese Communist Party. Shuanghui chairman, 71-year-old Wan Long, has been a member of the national legislature for the past 15 years. 

“I’m concerned that someone with this kind of background will not let this be the end of it,” said Marshall. “If this foreign investment committee doesn’t say no to this, how will they say no to buying Arthur Daniels Midland, or Tyson Foods?” 

“This is not like Brazil; it owns a considerable amount of America’s beef producers, but they’re not spying on us. They didn’t steal, according to the Obama administration, a trillion dollars’ worth of military computer technology.”

“I’ve got very little trust in the government of such a nation. Why would you give those people more leverage over you?”

  • GaryReber

    The proposed $4.7 billion sale of Smithfield Foods, Inc., America’s and the world’s largest pork producer with 46,000 jobs at stake, to a giant Chinese company supported by the Wall Street firm of Goldman Sachs has raised serious concerns about ownership and control of America’s core industries, i.e., those that meet basic needs such as food, clothing, and shelter. This reflects the stranglehold that Wall Street has in super-concentrating capital ownership power, choking the future of a just, free and democratic market economy in America and throughout the global economy — to the detriment of Peace, Prosperity and Freedom for all.

    Equity Expansion International, Inc. (EEI, http://www.eei-consultants.com) proposes that, instead of Americans working for foreign owners or jobs being outsourced to other countries, each person should work for him- or herself. Every American has the natural right to be an owner of capital, as stated in § 17(1) of the Universal Declaration of Human Rights, and § 1 of the Virginia Declaration of Rights of June 12, 1776. Handled properly, the sale of the Company could lead the way for a rebirth of American economic preeminence in which all Americans participate, and provide a model for the world, restoring American prestige. As a model, a sale to American workers could even help guide the Chinese to a more democratic system, both politically and economically.

    Keeping the Company locally and domestically owned would bring instant bipartisan support in both houses of Congress, while dethroning the monopoly money powers of a Wall Street elite would gain immediate support from many concerned political constituencies throughout the country. We therefore recommend a sale of Smithfield Foods, Inc. to its 46,000 workers through a “JBM S-Corp ESOP” with the following features and on the following terms, all of which are feasible under current U.S. law:

    • An S-Corp ESOP Trust should be established to purchase all outstanding shares of the Company. The purchase should be financed with capital credit extended by a consortium of community banks, small and large, located in Virginia. The loans would immediately be rediscounted at the Richmond Federal Reserve under Section 13 of the Federal Reserve Act, thereby ensuring an adequate source of low cost, asset-backed financing without requiring any worker to take reductions in pay, or to invest any of their existing savings. This is consistent with the “Capital Homesteading” proposal of the Center for Economic and Social Justice (CESJ, http://www.cesj.org).

    • Acquisition loan(s) would be repaid from the “future savings” (profits) of the Company itself in the form of annual cash “contributions” to the ESOP, with shares and, later, cash being allocated to workers’ accounts. After the scheduled annual loan repayments have been made, the Company could make additional cash “contributions” to the ESOP, to be invested in a prudent mix of securities, or as profit sharing to supplement take-home pay of all workers. The liquidity in the Plan would be used to repurchase shares from former Participants, build in diversification, and establish an “in-house stock exchange” for Company shares.

    • S-Corps are not subject to corporate income tax. Instead, the shareholders are taxed, whether or not they receive distributions of earnings. The ESOP Trust, as a tax-sheltered and sole owner of a Company organized as an S-Corp, would pay no taxes. Taxes would be paid only when ESOP Participants receive pass-through profit distributions or a distribution of benefits from the Trust. This, to all intents and purposes, makes the Company 50 percent more profitable by eliminating the corporate tax liability, while tax revenues suffer little, if any, diminution due to the increase in Participant income and expansion of productivity and economic growth in the surrounding economy stimulated naturally by increased consumption incomes, avoiding increased labor costs.

    • The human right of all Americans to become an owner demands equal access to the social tools needed to become owners. While the value of each person’s labor to the Company will differ in a just market system, ESOP share allocations should be equal across the board. When each person has equal access to the capital credit to become an owner, equal ownership rights promised to every citizen under Section 1 of the Virginia Declaration of Rights will finally be realized for every citizen.

    • Equal annual allocations should, everything else being equal as well, result in a typical Participant accumulating company shares worth over $100,000 ($4.72 billion/46,000 Participants), plus cash contributions to supplement other savings and labor benefits. When distributed by the ESOP Trust, benefits can be rolled over on a tax-deferred basis into another qualified plan such as an IRA or 401(k) plan.

    • With Justice in worker ownership and bottom-line profits shared by all workers from bottom to top, employees work together naturally for maximizing value and sales to customers. Unions can realize their ultimate commitment to economic and social justice for all members of society when they expand their collective bargaining constituencies, political influence and social value beyond rights of workers as workers, when they work to maximize and protect ownership rights and economic empowerment for all citizens. In a Justice-oriented Company culture, unions would enable members to directly vote their shares and personally participate in all shareholder decisions.

    • In addition to equal annual allocations, the ESOP should include “cliff” instead of graduated vesting (i.e., 100 percent vesting after a predetermined period instead of annual increases), and annual “rebalancing” of accounts, i.e., all Participants having an equal proportion of Company shares to other investments, with adjustments being made each year.

    • A similar effort involving a start-up construction company with innovative products and techniques is currently underway in Cleveland, Ohio. Community leaders are closely watching the project with an eye toward providing a model for the economic revival of the “Rust Belt.”

    • A minor change to current law could be made, extending the § 1042 tax-deferred rollover now available to shareholders selling to C-Corp ESOPs, to shareholders selling to S-Corp ESOPs. This would make a sale to an ESOP Trust more attractive to existing shareholders than a sale to the Chinese meat producer, and gain a significant political constituency among the ESOP community and pro-ESOP Representatives and Senators of both parties who have long been urging such a change.

  • Denni A

    anyone who buys any meat raised by China whether here are abroad is nuts.

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