Smithfield Foods Inc., the world’s largest pork producer, experienced a disappointing return to the public market on Tuesday, with its shares closing at $19.75, below the initial public offering (IPO) price of $20. The company and a subsidiary of its parent company, Hong Kong-listed WH Group Ltd., raised $522 million by selling approximately 26 million shares.
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Smithfield Foods products on display in a supermarket.
A Subdued Debut Amidst a Challenging IPO Landscape
Despite achieving a market capitalization of roughly $7.8 billion, significantly surpassing WH Group’s projection of $5.38 billion last year, the underwhelming IPO performance reflects a challenging start to the year for the US IPO market. While 2024 saw a resurgence in IPO activity with $43 billion raised, a 64% increase from 2023, it remained below pre-pandemic averages. Recent IPO struggles, such as Venture Global Inc.’s post-debut slump, further underscore the current market volatility. Smithfield and WH Group had initially proposed a price range of $23 to $27 per share for the combined 34.8 million shares offered. WH Group, which acquired Smithfield over a decade ago, will retain majority control following the listing.
Smithfield’s Strategic Focus on Growth and Packaged Meats
Smithfield boasts a portfolio of well-known packaged meat and fresh pork brands, including Eckrich, Nathan’s Famous, and its namesake label. The company also operates a substantial hog production business that supplies its fresh pork segment. In preparation for its return to the public market, Smithfield has undertaken strategic streamlining initiatives. These include separating its European operations into an independent entity in August and transferring a portion of its hog farming operations to a new venture controlled by Murphy Family Ventures LLC in December. The company has also divested hog production assets in Utah and Missouri.
CEO Shane Smith emphasized the company’s growth strategy, driven primarily by its packaged meats business, in a recent interview. He expressed confidence in the future, stating that the restructuring efforts have positioned Smithfield for expansion and that there are no plans for further plant closures.
Optimism in the Pork Market Driven by Beef Shortages
Smith expressed optimism about the outlook for products like dry sausage and anticipates that ongoing cattle shortages in the US will continue to drive consumers toward more affordable pork options. He suggested that the recovery of the beef market might be delayed, creating favorable conditions for the pork industry.
WH Group’s Chairman: From Village to Billionaire
WH Group, Smithfield’s parent company, is led by 84-year-old Chairman Wan Long, whose net worth exceeds $3 billion, according to the Bloomberg Billionaires Index. Wan’s journey began in a village near Luohe in China’s Henan province. After leaving high school and serving in the army, he joined Luohe Cold Storage, the predecessor to WH Group, in 1968. Rising through the ranks, he became general manager in 1984 and subsequently transformed the factory into Shuanghui Group, which went public on the Shenzhen Stock Exchange in 1998. Renamed WH Group in 2014, the company listed in Hong Kong the same year, catapulting Wan to billionaire status. The 2013 acquisition of Smithfield for $4.7 billion marked the largest Chinese acquisition of a US company at the time. Wan has committed to purchasing $64 million worth of Smithfield shares in the IPO at the initial offering price.
Navigating Challenges: Immigration Policies and Antitrust Lawsuits
Potential changes to US immigration policies pose a challenge to labor-intensive industries like meat processing. Smithfield acknowledged in its filing that new immigration legislation or stricter enforcement could increase costs and disrupt operations. CEO Smith stated that the company has taken proactive measures to address these potential challenges. Additionally, Smithfield faces ongoing antitrust litigation. The company has settled claims totaling $194 million but remains a defendant in other similar lawsuits.
The IPO was underwritten by Morgan Stanley, Bank of America Corp., and Goldman Sachs Group Inc. Smithfield shares are trading on the Nasdaq Global Select Market under the ticker symbol SFD.
