Smithfield spins off Europe business ahead of potential US listing

Dive Brief:

• Smithfield Foods, Inc., on Tuesday spun out its European operations as it looks to go public and list company shares in the United States.

• The nation’s largest pork producer said the decision further accelerates “unique growth opportunities for both businesses.” Smithfield Europe will be renamed Morliny Foods and remain a subsidiary of China-based WH Group, according to a release.

• Smithfield CEO Shane Smith said “it’s the right time” to separate the businesses as WH Group weighs listing its Mexico and U.S. pork operations under one entity on a U.S. stock exchange.

Dive Insight:

Following a difficult market backdrop that weighed on Smithfield and other meat processors, conditions are improving as lower feed prices begin to boost profits and generate cash flows for operational changes and strategies.

WH Group notified investors in mid-July of a proposal to spin off Smithfield operations in the United States and Mexico, with the goal of listing the operations as a separate entity on the New York Stock Exchange or Nasdaq Stock Market.

If the deal goes through, Smithfield remains a subsidiary of WH Group and its earnings will continue to be consolidated with the rest of the parent company’s financial results, according to the investor filing.

The listing proposal is not yet final and is subject to regulatory and board review before its approval. However, Smithfield seems to be doing its due diligence by separating its European operations from its North American assets ahead of a potential IPO.

“It’s the right time to establish our North American and European operations as stand-alone businesses empowered to execute distinct strategies addressing different market environments and opportunities,” Smith said in a statement. “In doing so, we provide our respective management teams with increased decision-making agility, optimizing the performance and prospects for each business.”

Smithfield and other meatpackers have responded to market volatility by focusing efforts on expanding higher-margin, value-added products while improving the cost structure and commodity exposure in its fresh meats businesses.

A spinoff of Smithfield’s European business allows the companies to better focus on regional-specific strategies to drive growth. In general, the European market is more fragmented and presents different dynamics than in North America, according to Smithfield.

Morliny supplies fresh pork and packaged meats across the continent with operations in Poland, Romania, Slovakia, Hungary, Spain and the U.K.

“We will benefit by being a nimbler competitor with a focused strategy addressing the European food market,” Luis Cerdan, CEO of Morliny Foods, said in a statement. “We are confident this step will accelerate growth opportunities for our people and our company.”