Smithfield Foods Inc, the largest U.S. hog producer, has hired Goldman Sachs Group Inc to help it weigh options after a key shareholder urged the company to break up, according to four people familiar with the matter.
Continental Grain, an agribusiness company which controls about 6 percent of Smithfield, said in a letter earlier this month that Smithfield should hire an independent bank to help it analyze options including splitting into three companies, instituting a cash dividend or bringing on new board members and executives with new skills.
Smithfield, which has a market capitalization of roughly $3.6 billion, said at the time that it would review the letter in consultation with financial and legal advisers.
The company and Goldman Sachs declined to comment. The sources asked not to be named because the matter is not public.
Continental Grain has called on Smithfield to split into three businesses: selling pork and packaged meats, hog production and international operations. Packaged meats is the largest business segment, generating sales of $6 billion in fiscal year 2012, or roughly 38 percent of the company's annual revenue.
Investors have said a break up of the company would improve its trading multiple by freeing the high-margin packaged food business from the capital-intensive hog production unit which is also very volatile due to fluctuating feed costs.
While Smithfield is valued at around 6 times earnings before interest, tax, depreciation and amortization (EBITDA), it may be worth 6.9 times if the hog business is spun off, according to Credit Suisse analyst Robert Moskow. The company's shares closed Friday at $26.21.
Continental Grain, formed in Belgium in 1813 as a grain trading firm, is now a large agribusiness investing firm. It became a major shareholder in Smithfield in 2007.
The firm's chief, Paul Fribourg, quit Smithfield's board in September 2009 over a disagreement with the company's plan at the time to issue $250 million of common stock.
It is not clear what the investment firm's next steps are, but a source familiar with the way Continental does business, predicted that the firm would be prepared to recommend its own slate of new directors if necessary. Continental Grain declined to comment.