Smithfield Foods Inc. (SFD) on Friday confirmed that its board received a memorandum from Continental Grain Company Thursday. Smithfield also said that its board, in consultation with its financial and legal advisers, will review it in due course.
Continental Grain Co, one of the biggest shareholders of Smithfield Foods, had sent a letter to the board Thursday urging it to consider strategic alternatives, including splitting the company into three completely independent companies.
Continental's letter said Smithfield should consider having its three main business segments—hog production, fresh pork and packaged meats, and International (Europe).
In the letter filed with the U.S. Securities and Exchange Commission on Thursday, Continental Grain disclosed that since the current management took over on August 31st, 2006 and through March 1, 2013, Smithfield stock has declined by 26 percent while, including dividends, Tyson stock returned +70 percent and Hormel returned +131 percent -- a shocking divergence in shareholder return among industry competitors. During this time, Smithfield has paid no cash dividends, while Tyson has cumulatively paid $429 million and Hormel has paid $728 million.
In addition, a regular cash dividend should be initiated which would support management's assertion that, because of their focus on pork processing and packaged meats, the business has much greater earnings visibility than it did when it was more dependent on hog production. There should be a regular dividend along the lines of what competitors like Hormel or Tyson pay, which would encourage a more stable shareholder base, while returning capital to shareholders, Continental Grain said.
According to the letter, Despite the poor performance of Smithfield stock, management has been extremely well compensated. The CEO has received $37 million in total compensation over the past two years.
Continental Grain believes that the addition of several directors with strong backgrounds in agribusiness management, branded consumer packaged goods, value creation, and broad business skills would help the company refocus itself and be an integral part in unlocking the value that lies in Smithfield.
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