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Smithfield bosses to pocket $85.4 million from Chinese deal

By Thomas Biesheuvel and Simon Casey
Bloomberg News

NEW YORK Smithfield Foods executives, who have run one of the worst-performing large U.S. food makers over the past five years, are set to reap at least $85.4 million from its sale to China’s Shuanghui International Holdings.

The company has been under pressure from its biggest shareholder for lagging behind competitors Hormel Foods and Tyson Foods. Continental Grain, which has a 6.8 percent stake, said in March that Smithfield should appoint new managers and break itself into three businesses as rising animal-feed costs made its hog-production unit unprofitable.

The total payout is based on the stock and share options held by Smithfield’s five top executives, according to data compiled by Bloomberg. Among the managers, CEO Larry Pope owns stock valued at $25.4 million based on the $34-per-share offer price, according a May 17 filing.

Pope would also get $11 million for his share options, according to Smithfield’s most recent proxy filing in August, which based its calculation on control of the company changing on April 29, 2012. The stock on that date was 38 percent less than the price that China’s biggest pork producer agreed to pay this week. The other four executives also stand to get paid out on their options.

Keira Lombardo, a Smithfield spokeswoman, declined to comment on the payouts.

The Smithfield senior managers, among the best paid in their industry, will stay on after the takeover, the company said March 29 when it announced the takeover.

That’s despite Smithfield posting a negative return of 18 percent in the five years through March 28, the second-worst performance of any U.S. food company with annual sales of $10 billion or more, according to data compiled by Bloomberg. Grain trader Bunge was the worst in the period.

In a March 7 letter, Continental executives urged Smithfield management and its board to focus on creating value for investors, who have seen “very little benefit” from the progress the company has made. During that time, Smithfield paid no cash dividends; in contrast, Tyson has cumulatively paid $429 million, and Hormel paid $728 million, according to the letter.

Smithfield Executive Vice President Joseph W. Luter IV, a descendant of the family that founded the Smithfield, Va., company, has stock valued at $21.1 million. He would get a $1.1 million payment on his options, according to the August proxy filing.

Chief Financial Officer Robert Manly has $13.4 million of stock and would get a change-of-control payment of $5.3 million, filings show. The other executives are Chief Operating Officer George Richter and Joseph Sebring, president of the company’s John Morrell unit.

Chairman Joseph W. Luter III, Luter’s father and Pope’s predecessor as CEO, has $30 million of stock.

Termination terms

The five executives stand to get even more if their employment is terminated during the takeover or within two years of the change of ownership, according to the August filing. In that case, total compensation and share sales would be at least $126.4 million.

Pope, 58, got total compensation of $16.5 million last year, according to data compiled by Bloomberg. The CEO, Manly, Richter and Joseph Luter IV received a combined $41.5 million last year. That’s the most for any group of senior managers at a U.S. food company except those at Illinois-based Mondelez International, according to data compiled by Bloomberg.

Buying Smithfield would give closely held Shuanghui control of a company that owns 460 farms and the Smithfield, Farmland and Eckrich packaged-meat brands. Smithfield’s livestock unit raises about 15.8 million hogs a year, according to the company’s website.

The deal needs approval from Smithfield shareholders and regulators including the U.S. Committee on Foreign Investment. It is expected to close in the second half of 2013.

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