Last year, Paul Hastings partner Carl Sanchez spent the Friday night before Memorial Day on a three-hour phone call convincing his client, Chinese meat processor Shuanghui International, that it had to be willing to walk away from its pending $7.1 billion acquisition of U.S. pork producer Smithfield Foods.
Earlier that week, Paul Hastings had sent a mark-up of the merger agreement to Smithfield and its attorneys at Simpson Thacher & Bartlett. Shuanghui was hoping to have it signed by early the following week. But Sanchez received word Friday morning that Smithfield had been approached by two rival suitors and wanted to wait two weeks to give the new bidders a chance to catch up.
“Our client was not happy with that message,” Sanchez recalls. “We were very close to signing a deal, and now we’re told that we’re going to be put on the back burner, everybody else was going to catch up, and then they’d make a decision.” Sanchez advised giving Smithfield an ultimatum: Negotiate with Shuanghui immediately, or the Chinese company would walk away.
For Sanchez, who was already in his pajamas when he made that Friday call from his house in Southern California, the conversation was tense: “I think I lost five pounds in sweat,” Sanchez says. Although longtime client-relationship partner Raymond Li has known Shuanghui chairman Wan Long for nearly two decades, San Diego–based Sanchez had never personally worked with the company, and he was pitching an incredibly risky proposal.
But Shuanghui was convinced, so Sanchez called Simpson Thacher’s Robert Spatt late Friday night to tell him to expect an email. “The email said, basically: ‘Here’s the merger agreement. You need to engage with us starting tomorrow morning, and we’re getting the agreement signed by Tuesday. And, if you don’t agree to do that, we’re walking away.’”
The gambit worked, Sanchez says, because Smithfield’s board had a fiduciary duty to not allow a perfectly good offer to get away when it could not be sure what kind of offers the two rival bidders would eventually produce. “We made it easy for them [to say yes], but we made it impossible for them to say no,” Sanchez says.
The sale became the largest takeover of a U.S. company by a Chinese buyer. Among the provisions Sanchez’s team devised to keep both sides happy was a qualified go-shop component that allowed Smithfield to solicit competing offers only from the two aforementioned rival bidders for up to 30 days after the deal with Shuanghui was signed. If a deal with one of those two companies was reached, Smithfield would be liable for a reduced termination fee.
Getting the deal signed was just the beginning. The size of the foreign investment and the fact that Shuanghui is based in China—where there have been a spate of recent food-related scandals—meant that the Shuanghui-Smithfield combination faced the sort of regulatory hurdles Sanchez had not experienced in his two decades of dealmaking. It ended up undergoing strict review by the Committee on Foreign Investment in the U.S. as well as antitrust review in several jurisdictions where Smithfield operates, such as Mexico, Russia and Ukraine. Even the Federal Communications Commission was involved, since Smithfield uses airplanes and radio systems at some of its larger facilities.
The deal, announced in May, did not secure all of the necessary approvals until September. “This is the only deal I’ve worked on where every single regulatory agency involved, both foreign and domestic, took their entire regulatory timeframe to approve the deal,” Sanchez says.
Shuanghui was clearly pleased with Sanchez’s work, because the company wasted no time handing him the reins for a follow-up deal. Sanchez advised Shuanghui on its joint takeover, with Mexico’s Sigma Alimentos, of Spanish meat processor Campofrio in a deal announced at the end of December.
It also appears that there are no hard feelings on the other side of the negotiating table. Sanchez says that Smithfield CEO C. Larry Pope congratulated him on his work. Spatt, meanwhile, says that Sanchez “was great to work with, even on the opposite side, and quite focused on getting to the goal line for his client and the deal.”