Smithfield Foods Acquisition Good for US, say Tuck Professors: MBA News

While some mainstream publications in the US have reviewed the potential acquisition of Smithfield Foods by private Chinese firm Shuanghui as the latest step to China's domination of global business, two Tuck School of Business professors say that the proposed buyout could be beneficial to all concerned, including the US economy.

 

"A few weeks ago, Chinese conglomerate Shuanghui announced a $4.7-billion offer to purchase Smithfield Foods, America’s largest pork processor," explain Matt Slaughter and Matthew Rees in a co-penned post to their weekly business commentary blog, the 'Slaughter and Rees Report'. "If the deal is approved by regulators (Smithfield’s board has already assented), it would be the largest acquisition of an American company by a Chinese one."

 

"And like clockwork, this latest milestone of China’s accession into the global economy has sparked the usual fearful commentary about China," continue the two Tuck School of Business Professors. "There are indeed legitimate concerns about China’s economy and economic policies—e.g., intellectual-property theft and cyber-espionage. But there is much to welcome about rising foreign direct investment (FDI) from emerging markets like China."

Firstly, the professors point out that while foreign acquisition of US companies is now common-place, the rate of Chinese investment is still relatively low. In fact, much of China's investment in the US has been focussed on US Treasury securities, so the potential acquisition of Smithfield Foods instead points to a desire to move away from Chinese investment in US debt - "something that should be welcomed by those who fear the size of China's Treasury holdings."

 

The Tuck School of Business professors say further benefits and safeguards of Shuanghui's potential acquisition of Smithfield Foods include:

 

•    Shuanghui is not one of the many state owned enterprises in China, and instead has stakeholders that include Goldman Sachs and Singapore's sovereign wealth fund. This follows a trend of privately owned Chinese firms investing overseas.

•    As a result of the foreign direct investment that the Shuanghui-Smithfield Foods deal represents, opposed to investment in stocks and shares, the resulting US entity should be more stable. Further, job creation within the US is more likely for the same reason.

•    The deal needs to be reviewed by the Committee on Foreign Investment in the United States, and both companies have expressed a willingness to participate in a process that will ensure US interests are safeguarded.

•    If the deal is approved and finalised, then the case can be seen as a success story for foreign investment within the US, potentially leading the way for more investment.

 

The 'Slaughter and Rees Report' is a weekly brief on the intersection of business and policy from Tuck School of Business at Dartmouth College. The insight and analysis on global business trends and policies helps to represent how the world's top MBA programs use genuine real-life case studies to aid in the nurturing of their MBA students.