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Purdue Farms should move forward with bidding on the purchase of Smithfield Foods.
The following will be discussed in detail supporting our position:
Market Conditions
Branding
Financials
Culture
Supply Chain
Government Regulations
Risks
Jon Giglio
Our assessment indicates this to be a favorable acquisition for Purdue Farms. During this presentation, we will discuss in detail why we know this will be a favorable business move for our great company. There is ample market opportunity, with increasing demand in the pork industry up to as much as 60% by 2050. We have compiled how this acquisition will be marketed to bring brand awareness to our organization. From a financial perspective, we are recommending debt financing as interest rates are still at historic lows. Our plans to maintain and improve culture within organizations will be executed through our employee engagement strategy. We will leverage both Purdue Farms and Smithfield Foods supply chains to create a best-practices efficient way to deliver products to our customers, as well as receiving products and services from our vendors. We expect there to be government regulations that our legal team will need to resolve. However, our overall risks remain low compared to the upside for our organization moving forward.
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Market Conditions – Smithfield Foods helps U.S. Food Sustainability
Major food ingredients dwindle, while the world’s population continues to grow
Most food products are derived from the dwindling ingredients
Global population expected to reach 9.8 billion in 2050
Chinese companies are strategically acquiring agricultural resources, while U.S. helps them
Smithfield Foods helps China improve the quality and scarcity of their food supply
Smithfield purchase give Chinese company 1 in 4 pigs raised in the United States
Smithfield Foods in the U.S retains more farmland, livestock, and other agricultural resources needed for food security
Lia Bobek
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Market Conditions – Competition
Meat Industry Competition
Positive market trends for the Meat Industry
New Discussions regarding the Trans-Pacific Partnership
SWOT Analysis – Perdue Farms
Strengths: Marketing & Premium Prices Opportunities: Diet Trends & Consolidation
Weaknesses: Management Change & Chicken market Threat: Global footprint
SWOT Analysis – Smithfield Foods
Strengths: Top Pork Producer Opportunities: Consumer demands & Packaging
Weaknesses: Price for feed Threats: Rising Interest & Exchange Rates
Main Competitors for Perdue Farms & Smithfield Foods:
Tyson Foods
Pilgrim’s
Hormel Foods
JBS Foods
Anna Stepper
Global strategists are predicting positive trends and opportunities in the upcoming year for the Meat Industry. Competition will likely increase in the U.S export markets due to increase in production in most parts of the world. Also to note, there appears to be growing competition for poultry in China and Asia while there is growing competition for pork and poultry in Mexico.
Another Industry note that would have an impact on competition is a potential change to the United State’s participation in the Trans Pacific Partnership. President Trump is now hinting at the possibility of re-entering into the partnership which would be very positive for the meat industry’s opportunity in global trade.
SWOT analysis has been completed in order to analyze Perdue Farms and Smithfield Foods position in
the market.
Strengths of Perdue Farms are their strong marketing and their ability to charge premium prices for its established quality. They are known for their selective breeding which has developed quality chickens.
Weaknesses are the change in management that they have had from centralized to decentralized, along with a decline in the chicken market in the U.S.
Some Opportunities for Perdue are the rice in popularity of turkey and chicken with current diet trends and the popularity and possibility of acquiring other industry competitors.
The Threat to Perdue is the fact it has a smaller global footprint than many of its competition.
For Smithfield, their strengths are being the top pork producer and processor and having operations in 26 U.S states, Mexico, and 10 European countries.
Weaknesses are increase in prices for feed ingredients and fluctuations in foreign currency exchange rates.
Some opportunities include meeting consumer demands for “better for you foods” that are lean protein and include natural ingredients, and to differentiate by innovating it’s packaging for quality and convenience.
Threats for Smithfield are the increasing costs due to rising interest and exchange rates and pressures associated with food safety.
They main competition to both Smithfield Foods and Perdue Farms are Tyson Foods, Pilgrims, Hormel Foods and JBS. The similarities in the competitors mentioned are they all have an international presence, with productions in different countries and also selling products globally.
Based on the competition and market conditions, it appears it would be mutually beneficial for Perdue Farms to acquire Smithfield Food. This would allow them to have a stronger range of product offerings of pork and poultry. Perdue would also benefit from Smithfield's strong global presence for production and processing. With potential increase in poultry competition in China and Asia, it would be a great opportunity to enter the competition with a high quality poultry product, such as Perdue chicken. Overall, the market conditions look to be improving and the combined efforts of both Smithfield and Perdue would put them in a very good position.
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Branding the Acquisition
Erica Venditouli
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Three Steps for Perdue Success
“Perdue saves America”
Summer of New Perdue
Perdue Pork Trial
Campaign showing chicken saving pig from China
American comradery
Joining of brands
Cookout commercials and Instagram advertising with new products
Contest for best recipe for new product
Use Influencers and trend setters
Strategize best name for Smithfield Food products
Research on new name or addition to Perdue family name
Ensure old brand success and effective new product integration
Financing Options for Smithfield
The valuation process and calculation of total assets is an important consideration for Purdue.
The total value of assets determines the offer price for the company.
It covers the value of property, plant, and equipment, cash balance, and value of inventories, accounts receivables, and short-term investments.
It is also important to establish the book value of assets for the calculation of total value of firm .
Divya Uyyuru
Valuation is an important process in the acquisition of a company as it involves determination of a company’s value. The total value of a company is obtained from the difference between assets and liabilities. When a company has high asset value compared to liabilities, it is expected that there will be a high value. For Smithfield, the total value is expected to be high due to the strong financial position and performance. It will be important to get the actual value of property, plant, and equipment, cash balance, and value of inventories, accounts receivables, and short-term investments in the calculation of the firm value for acquisition purposes. The book value of these assets helps in establishing the actual value of the firm for pricing purposes.
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Financing Options for Smithfield (Cont’d)
The value of liabilities is important in the acquisition and mergers processes.
The liabilities represent the financial obligations that the target company has on the external and internal financial lenders (Custodio, 2014).
It is important to consider the value of liabilities in respect to assets for the Smithfield acquisition.
The funding sources available include debt and equity financing.
It is recommended that the company should embrace debt financing over equity to maintain strong control of the organization.
Divya Uyyuru
Since Purdue has a weaker financial position, it will be necessary to seek external financing through debt or equity financing. The company should consider debt financing as the appropriate option for the company’s assets. The calculation of liabilities value is also important in the determination of Smithfield’s total value for acquisition price.
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Work Culture & Employee Reaction
Anxiety
Fear
Apprehension
Stress
Selfishness
Feeling threatened
Uncertainty about future
Grief
Denial
Anger
Sadness
Pride
Domination
Superiority
Excitement
Positivity
Future thinking
Adrianne Havlicek
During this slide presentation, each one of the subjects listed would be discussed on how employees may be feeling after a merger/acquisition has been announced and how management can help mitigate these emotions.
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Factors of Employees Happiness in a Company
Companies Success rate depends upon the happiness of employees.
Factors which play important role in the happiness of employees
Suggestions to improve the happiness rate of employees
Average rating by the former and current employees of Perdue Chicken:
Average rating by the former and current employees of Smith Foods:
Dinesh Vanipenta
“Employees who believe that management is concerned about them as a whole person – not just an employee – are more productive, more satisfied, more fulfilled. Satisfied employees mean satisfied customers, which leads to profitability.” Anne M. Mulcahy, former CEO of Xerox
According to the brightermonday.co, indeed.com and glassdoor.com, these are the following five generic factors which plays an important role in the happiness rate of employees in any company:
1. Praise and Recognition 2. Meaningful and Interesting Work 3. Work-Life Balance 4. Organizational Trust, Culture and Environment 5. Professional Growth and Development
The employees at both the companies think that working hours are very hectic and the employees are generally unhappy with the supervisors and the mangers so board of both companies needs to attend this matter. The positive change could be that there should be policies to maintain the work-life balance of employees and managers. Also supervisors needs to appreciate the employees for their good work and build a more professional and friendly relationship.
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Supply Chain
What is supply chain?
Levels of supply chain
How can Perdue chicken and Smith foods combine their supply chain to be mutually beneficial
Mutual products
Logistics department
Parasurama Parasurama
Supply chain simply means all the processes and factors that involves in the creation of a product and then its distribution and sale in the market. A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.
Supply chain management consists of three important levels; strategic, operational and tactical.
2. Perdue Farms requires the chicken feed and they don’t make the feed on their own. So Perdue chicken has to rely on the outside suppliers for the chicken feed. The Smith Foods has a product line of chicken feed as well so Perdue chicken can always use the product of Smith foods as their raw material.
3. First of all we will have to sum up the common products the both companies are making because the common products requires same raw materials which are available from the same type of suppliers. So the Smith foods gets all of its raw materials for dairy products from different suppliers all over the country but it can get those raw materials from the Perdue Farms e.g. eggs.
Apart from supplying the raw materials to each other both companies can share the logistics department for the supply of the products into the market
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Cross-border regulation is the major governmental regulation issue in the process.
The fact that Smithfield, a China-based firm is being acquired by Purdue, a US-based firm creates cross-border regulation.
The government restrictions on the cross-border restrictions will affect the process and acquisition value (Alimov, 2015).
The controls and government regulations are likely to increase the costs of acquisition or merger.
It also covers the transfers across the labor markets that affects the process.
Government Regulations Mergers and Acquisition
Mahesh Babu
The cross-border regulation affects the extent to which Purdue will engage in acquiring Smithfield from the current owner. The regulations have the potential of increasing acquisition costs or introducing new requirements that might make the process complex. With the increase in costs due to the cross-border regulations, it is expected that the firm value will go up, affecting Purdue’s ability to pursue the acquisition process. The government regulations will also affect the transfer of workers and assets across the borders. The trade wars between China and US is also expected to play a significant factor as Purdue plans to acquire Smithfield Foods from the current owner.
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The termination of $240,000 for Smithfield by the USDA also impacts the acquisition process.
The renegotiation of the contract when the company is under the U.S management is also a significant issue in the process based on the applicable laws and procedures (Luo, Xue & Han, 2010)
The taxation laws play a critical role in the reacquisition of Smithfield Foods
Government Regulations Mergers and Acquisition (Cont’d)
Mahesh Babu
The legal issues such as the decision to terminate the $240,000 for Smithfield by USDA will affect the acquisition process. The contractual agreements are part of the acquisition process and the termination will affect the procedure in terms of efficiency and costs. It is expected that there will be a significant increase in the regulation costs since the process involves cross-border transaction. The acquisition of Smithfield by Purdue involves a series of negotiations from both parties and the government regulations on the acquisition process will affect the process. Finally, as part of the government regulations, it is expected that the taxation laws will influence the process and company’s decision to complete the process. High taxation may discourage the process considering the fact that Purdue has a poor financial performance and position compared to Smithfield.
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Risks of Acquisition:
| Risk Name | Description | Severity |
| 1. Overpayment | Purdue may have to overpay and come up with huge budget to acquire Smithfield Foods since it is the current biggest asset of Shuanghui International. | High |
| 2. Culture Assimilation Challenges | Corporate cultures of the potential merging companies differ from each other so it may pose a risk to the company’s growth. | Moderate |
| 3. Target Achievement | It might be difficult task for the integrated companies to achieve a desired target for sales and marketing due to differences and cost saving and economies of scale. | Moderate |
| 4. Losing Chinese Market | The deal might largely affect the exports of pork from US to China as Shaunghui International could potentially replace Smithfield / Purdue as pork supplier to China since China is one of the largest pork consuming country. | High |
| 5. Employee anxiety, and engagement issues | The process may lead to high expectations from employees that could lead to anxiety and might have differences in moral values. Job security would be reason for concern as there is a chance of layoffs. | Low |
Harmandeep Dhuck
A corporate merger can have huge effect on a company’s growth and long term goals. Merger can be profitable and beneficial for the company as it helps its business to expand. Companies also engage in merger & acquisition to dominate their sector. The acquisition of Smithfield Foods could lead to potential risks and challenges for Purdue farms as the company’s strength revolves around chicken production in the US. Purdue farms is one of the largest poultry producers in the U.S. and one of the world’s leading producers of organic chicken, while on the other hand, Smithfield Foods is a meat processing company and the world’s largest hog raiser and pork producer.
Below are the potential risks that would be an obstacle in acquiring Smithfield Foods.
Overpayment - Shuanghui’s one of the biggest asset to date is smithfield foods, acquiring the company would lead to overpayment for Purdue. They need to come up with large budget to buy Smithfield because it is an established and international company.
Cultural Assimilation Challenges – Purdue and Smithfield both differ from each other in the sense that have different buyers for their meat production since purdue produces chicken while Smithfield is a pork producer. Both companies have different target market. To have successful acquisition between two companies, the team leaders / managers of both company should coordinate and cooperate by making a set of shared rules with a common goal.
Target Achievement – achieving target goals in any company is important and it is a daunting task to reach the desired target for sales and marketing as the two companies have different target market and differences in cost saving. The management team should communicate the target goals with the employees and set standards to achieve it.
Losing Chinese Market – Smithfield is currently owned by a Chinese company and has a huge market in China, since they are the biggest producer and consumer of pork. Selling the company back to US would lead to potential risk of losing Chinese market for pork supply. Smithfield might have to find another international buyer in China.
Employee anxiety and engagement issues – employees of the merging companies might land in distress due to the fear of post merger layoffs. Employees might have less confidence with the management team.
The acquisition poses great scope for growth through expansion and diversification. The companies should foresee the challenges that might arise due to the acquisition. It is vital for the company to obtain a professional advice before the acquisition to manage the merge effectively and efficiently and to prevent the above mentioned potential risks and losses that may face in the process.
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References
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References
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References
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Hermann-Nehdi, A. (n.d.). 4 pain points employees will face during a merger or acquisition. Hermann. Retrieved from: https://blog.thinkherrmann.com/4-pain-points-employees- will-face-during-a-merger-or-acquisition
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Hermann-Nehdi, A. (n.d.). 4 pain points employees will face during a merger or acquisition.
Hermann. Retrieved from: https://blog.thinkherrmann.com/4-pain-points-employees-
will-face-during-a-merger-or-acquisition
Work culture – meaning, importance & characterics of a healthy culture. (n.d.). MGS
Management Study Guide. Retrieved from:
https://www.managementstudyguide.com/work-culture.htm
Shu Zhou, L. Q. (2013). The Differences of Factors Influencing Employees’. American Journal
of Industrial and Business Management, 719-724.
Perdue Farms, Inc. (n.d.).
Retrieved from https://www.indeed.com/cmp/Perdue-Farms,-Inc./reviews
Smithfield Foods. (n.d.).
Retrieved from https://www.indeed.com/cmp/Smithfield-Foods/reviews
Ganeshan, R., & Harrison, T. P. (1995). An Introduction to Supply Chain Management.
Pennsylvania.
Alimov, A. (2015). Labor market regulations and cross-border mergers and
acquisitions. Journal of International Business Studies, 46(8), 984-1009.
Green, M. B. (2016). Mergers and acquisitions. International Encyclopedia of Geography:
People, the Earth, Environment and Technology, 1-9.
Heinemann, A. (2012). Government control of cross-border M&A: legitimate regulation or
protectionism? Journal of International Economic Law, 15(3), 843-870.
Luo, Y., Xue, Q., & Han, B. (2010). How emerging market governments promote outward FDI:
Experience from China. Journal of World Business, 45(1), 68-79.
