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Starboard Value LP, one of the largest shareholders of U.S. pork processor Smithfield Foods Inc. with beneficial ownership of approximately 5.7% has sent a letter to Smithfield’s board stating that the $4.72 billion takeover bid from China's largest meat producer Shuanghui International Holdings Ltd. is less than the company’s actual worth. Starboard also stated that the estimated value of the company is $9 billion – $10.8 billion or $44 – $55 per share, which is much higher than the deal price of $34 per share.

Per the deal signed on May 30, Shuanghui will acquire all of the outstanding shares of Smithfield for $34.00 per share totaling $7.1 billion, including Smithfield’s debt. Smithfield's stock will no longer be publicly traded once the deal closes in the second half of the year.

The merger agreement was approved by both Smithfield and Shuanghui’s board and Smithfield believes that the merger will be in favor of the company and its shareholders. Starboard also believes that the deal will offer value to Smithfield shareholders. However, Starboard thinks that it will be in the best interest of the shareholders if Smithfield sells off its various divisions like pork, hog production and international business individually rather than divesting the whole business all at once.

Per the merger agreement, Smithfield is prohibited from looking for better offers for itself or contacting others who may be interested in acquiring parts of the company. However, Starboard is seeking a buyer for the company's individual business units so that the shareholders get a better deal than the proposed offer.

Prior to this buyout offer, Continental Grain Co., another major shareholder, had sent a letter to the company in March urging a split, in order to improve its underperforming business and shareholder returns. After the deal with Shuanghui, Continental Grain sold its entire stake in the company.

Last week, Smithfield posted fourth quarter and fiscal 2013 results. Its earnings missed the Zacks Consensus Estimate by 50.0% and declined 51.2% from the prior-year quarter due to weak margins in the hog production business and decline in pork exports.

Notably, Smithfield had been struggling with its operations since the past few years as a result of higher grain costs. In addition, oversupply of hogs resulted in lower hog prices, which along with higher grain costs led to margin declines. Smithfield was also uncertain about the performance of its Hog Production segment in the upcoming quarters.

Smithfield holds a Zacks Rank #3 (Hold). Meat producers like Pilgrim’s Pride Corp (PPC - Snapshot Report) and Sanderson Farms Inc (SAFM - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy), are better placed and are worth considering. Another consumer staples company, which is worth considering, is Flower Foods Inc (FLO - Snapshot Report) with a Zacks Rank #1.

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