BUSINESS
05/30/2013 06:38 pm ET

Smithfield Foods Deal Unlikely To Face Challenge From Federal Regulators

AP

The $4.7 billion takeover of the largest pork processor in America, Smithfield Foods, by a Chinese conglomerate will almost certainly gain federal regulatory blessing, experts in cross-border deals told The Huffington Post on Thursday.

Though food-safety advocates have raised alarm, noting that the Chinese purchaser, Shuanghui International Holdings, has a checkered past, an adviser directly involved in the deal expressed confidence that a federal panel that reviews foreign takeovers of American companies will ultimately approve the Smithfield deal.

The adviser, who spoke on condition of anonymity, said Shuanghui’s representatives have in recent weeks sought out and mollified the concerns of members of the multi-agency review panel, known as the Committee on Foreign Investment in the United States (CFIUS). The U.S. Treasury, which leads the committee, declined to comment.

Several attorneys with experience on mergers involving foreign companies said the review panel was unlikely to nix a merger involving two food processors because the deal does not present any conventional national security concerns, such as potential spying, access to military technologies or control over critical infrastructure.

“As much as we’d like to think that ham is part of the fabric of our country, I don’t see how it could be a national security issue,” said Dale Turza, a Washington partner of the law firm Cadwalader, Wickersham & Taft. “I can’t imagine that they will have any problems on this at all.”

Some opposition has already emerged on Capitol Hill. Sen. Chuck Grassley (R-Iowa) on Wednesday urged CFIUS to probe the deal in light of Shuanghui’s food-safety record, including a 2011 admission that the company injected a carcinogenic additive into pig feed at a plant in China.

“There are [...] a number of points that CFIUS must consider as it analyzes this deal,” Grassley said in a statement. “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.”

But Grassley’s words are unlikely to yield significant action. Seven years ago, pressure from lawmakers scotched a bid from Emirati Dubai Ports World to buy the leases to operate six major American seaports, prompting Congress to reform the review process: Lawmakers expressly eliminated political considerations as grounds for concern, leaving the panel to focus on a narrow set of security issues.

“Ever since the reform of CFIUS in 2008, the CFIUS process is insulated from the Hill,” said Theodore Moran, a professor at Georgetown University who wrote a 2009 book on the panel. “They’re quite precise in how they’re structured and how they go about threat assessments.”

But other experts suggested that politics could find its way into the process regardless, noting that the deal amounts to the largest-ever takeover of an American firm by a Chinese company.

“The opponents of this will take food safety and some environmental issues and raise them to a national security issue,” said Gary Hufbauer, a fellow at the Peterson Institute for International Economics who studies foreign investment in the United States. “That argument might wash in Congress.”

Such was the case eight years ago, when congressional pressure prompted the Chinese oil company Cnooc Ltd. to abandon a bid for Unocal, an American energy conglomerate. Though Unocal then controlled less than 1 percent of the American oil supply, congressional opponents of the deal presented Cnooc's bid as a threat to national security.

“What has happened in the past when the politics gets rough, the company simply withdraws,” Hufbauer said. “It doesn’t even get as far as the CFIUS review.”

Turza, the Cadwalader partner, has played no role in the Smithfield deal but said Shuanghui appears to have studied the political history of foreign corporate takeovers and taken action, winning over potential opponents in advance.

“To avoid the political issues, there are some big companies that have gone into Congress proactively to let them know, ‘No, no, no, we plan to keep things the way they are,' and assuage them that way,” Turza said. “You meet with a congressional delegation to tell them it’s going to be OK.”

Lobbyists who have worked on CFIUS reviews say the key to securing approval is to anticipate areas of concern and address them even before a deal is struck.

"The secret sauce of a good CFIUS lawyer is reaching out well in advance and making sure you understand the government’s interests and worries,” said Mark Plotkin, a lawyer at Covington and Burling who specializes in CFIUS issues. “You need to know what the agencies are concerned about."

With politics unlikely to scuttle the Smithfield-Shuanghui deal, the biggest challenge to the takeover may yet come from competitors. As Bloomberg News first reported Thursday, companies in Thailand and Brazil were also eyeing Smithfield as a possible acquisition target.

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