U.S. Expected to Clear China Firm’s Smithfield Purchase

Wall Street Journal – by WILLIAM MAULDIN

WASHINGTON—The purchase of Smithfield Foods Inc. SFD +29.23% by China’s Shuanghui International Holdings Ltd. is unlikely to face serious opposition from the U.S. committee that reviews foreign acquisitions, according to former U.S. officials and trade experts.

In announcing their proposed combination Wednesday, the companies said the $4.7 billion deal is subject to approval by the Committee on Foreign Investment in the U.S., or CFIUS.

Several current and former officials and trade experts say that the investment committee is quite likely to approve the deal, despite political concerns about the growing Chinese ownership of U.S. assets, because meat production isn’t considered core to national security. The tie-up would likely represent the biggest purchase of a U.S. company by a Chinese company.

“The administration clearly has a public policy of open arms—it’s hard for me to believe that there are going to be many speed bumps in this transaction, especially a week before President Xi Jinping’s summit here,” said Michael Wessel, a member of the U.S. China Economic and Security Review Commission. “In my opinion, the timing is propitious.”

President Barack Obama is set to meet Mr. Xi in California June 7-8.

U.S.-China relations have been marred by accusations of computer espionage, Beijing’s yuan policy and concerns about growing economic and military competition between the two biggest global economies.

After a CFIUS review, President Obama last year blocked a Chinese-owned company from investing in wind-farm projects in Oregon. The stated reason was the proximity of a Navy base that hosts drones and other security apparatus. The denial marked the first time in 22 years a U.S. president had blocked a foreign investment in that manner.

On Wednesday, Sprint Nextel Corp. S +1.10% said its takeover by Japan’s SoftBankCorp. 9984.TO +2.11% cleared its hurdles with the committee. As part of the deal, the new Sprint must appoint a new security director who would sit on the wireless carrier’s board and be approved by the government, said Sprint. Scrutiny of the Sprint deal indicated the government’s concerns about foreign involvement in U.S. telecommunications networks.

The U.S. food supply is considered a less sensitive component of national security, and U.S. meat producers freely export around the world.

With the Smithfield deal, the committee would likely look at any military-supply contracts as well as the proximity of pork farms to U.S. military bases or other strategic locations, said Nancy McLernon, president of the Organization for International Investment, which lobbies for foreign companies in the U.S.

Concerns about China’s food-safety standards are unlikely to derail the deal because the Department of Agriculture regulates U.S. meat production and imports and Smithfield is likely to keep its American managers.

A person close to Shuanghui said the Chinese company isn’t concerned about passing the CFIUS review. The company believes the fact that it is privately owned, rather than state controlled, will help ease any potential concerns in Washington.

A spokeswoman for the Treasury Department, which chairs the foreign investment committee, declined to comment, saying that by law information filed with the committee may not be disclosed to the public.

Before such a purchase is announced, the companies involved or their representatives frequently make contact with U.S. officials to uncover potential obstacles and gauge the likelihood that the deal could be blocked, experts say.

“I honestly do not see anything that would seriously damage or delay the process,” said William Brock, a former U.S. trade representative and the current chairman of the international policy roundtable at the Center for Strategic and International Studies, a think tank. “The focus of those who have been concerned about Chinese investment is in the security area.”

If CFIUS approves the deal, problems could still emerge later. When Dubai Ports World moved to buy U.S. shipping ports on the East Coast, CFIUS initially approved the transaction, but a campaign by U.S. senators and others concerned about national security later led to the deal’s collapse.

China’s Cnooc was forced to drop its $18.5 billion tie-up with oil producer Unocal Corp. in 2005 because of what it called “unprecedented political opposition.” In February the foreign-investment committee approved Cnooc’s bid for Canda’s Nexen, which owns platforms in the U.S. Gulf of Mexico.

—David Benoit contributed to this article.

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