Will Smithfield Earnings Lure Another Bidder to the Table?

Smithfield Foods (NYSE: SFD) will release its quarterly report on Friday, and the company remains at the center of attention because of controversy surrounding its potential purchase by a Chinese bidder. Smithfield earnings are expected to improve, but the real question investors are facing is whether interest from other potential buyers could create a bidding war for the meat producer.

Before China's Shuanghui made its $7.1 billion takeover bid for the company, Smithfield's stock had generally risen and fallen with the changing prospects for meat producers generally. After having recovered from the worst of the financial crisis, Smithfield's shares had generally stagnated over the past couple of years, as high feed costs weighed on the industry's profitability. Let's take an early look at what's been happening with Smithfield Foods over the past quarter and what we're likely to see in its report.

Stats on Smithfield Foods

Source: Yahoo! Finance.

Will Smithfield earnings make investors happy?
In recent months, analysts have had mixed views on prospects for Smithfield earnings, cutting a penny per share from July quarter expectations and $0.08 per share from current fiscal-year projections, but boosting fiscal 2015 estimates by $0.18 per share. The stock has been in a holding pattern, rising about 2% since late May.

Ordinarily, earnings wouldn't be all that important for a company that's received a takeover bid. If the Shuanghui deal goes through, then Smithfield investors already know they'll get $34 per share for their stock. That's why when Smithfield announced a more than 60% drop in earnings back in June, the shares didn't budge.

But recently, controversy over the national-security implications of the deal have led to speculation that a rival bidder might come in to make another bid for Smithfield. Hedge fund Starboard Value expects to vote against the Shuanghui merger and is reportedly looking to find third parties that could make a richer bid for the pork producer. According to Bloomberg, Starboard has approached Blackstone Group (BX) as well as industry peer Tyson Foods (TSN 1.83%) to weigh interest in a rival offer for Smithfield. With a decision from U.S. regulators to approve the Shuanghui deal expected around mid-month, a scheduled Sept. 24 special shareholder meeting could prove to be the forum for investors to evaluate any new bid that comes about.

The industry has also come under pressure over concerns about the use of growth additives in farm animals. Both Smithfield and Tyson have decided to stop using cattle that have been fed beta-agonists, which encourage rapid weight gain. Rising prices should partially offset higher costs for the meat producers, and avoiding use of the drugs can open up export markets to countries that have banned them.

In the Smithfield earnings report, watch for comments from management about the status of the Shuanghui merger as well as any rival bids that might come up. In addition, any news from the government's review of the transaction could lead both to movement in Smithfield's stock and to further action from potential rivals looking to make a buyout offer of their own.

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