SMITHFIELD FOODS, INC.
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(Name of Issuer)
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Common Stock, Par Value $0.50 per share
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(Title of Class of Securities)
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832248 10 8
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(CUSIP Number)
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Michael Mayberry
Associate General Counsel
Continental Grain Company
277 Park Avenue
New York, NY 10172
Tel. No.: (212) 207-5390
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
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March 7, 2013
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(Date of Event which Requires Filing of this Statement)
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 2 of 11 Pages
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1
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NAME OF REPORTING PERSON OR
Continental Grain Company (f/k/a ContiGroup Companies, Inc.)
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2
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
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(a) o
(b) x
|
3
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SEC USE ONLY
|
|
4
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SOURCE OF FUNDS
OO
|
|
5
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
|
o |
6
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CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
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7
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SOLE VOTING POWER
-0-
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8
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SHARED VOTING POWER
8,052,099
|
|
9
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SOLE DISPOSITIVE POWER
-0-
|
|
10
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SHARED DISPOSITIVE POWER
8,052,099
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11
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,052,099
|
|
12
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o |
13
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.8%
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14
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TYPE OF REPORTING PERSON
CO
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 3 of 11 Pages
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1
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NAME OF REPORTING PERSON OR
Arlon Opportunities Master LP
|
|
2
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) x
|
3
|
SEC USE ONLY
|
|
4
|
SOURCE OF FUNDS
OO
|
|
5
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
|
o |
6
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CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
|
7
|
SOLE VOTING POWER
-0-
|
8
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SHARED VOTING POWER
130,811
|
|
9
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SOLE DISPOSITIVE POWER
-0-
|
|
10
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SHARED DISPOSITIVE POWER
130,811
|
11
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
130,811
|
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o |
13
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.1%
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|
14
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TYPE OF REPORTING PERSON
PN
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 4 of 11 Pages
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1
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NAME OF REPORTING PERSON OR
Paul J. Fribourg
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2
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) x
|
3
|
SEC USE ONLY
|
|
4
|
SOURCE OF FUNDS
OO
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
|
o |
6
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CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
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7
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SOLE VOTING POWER
277,953
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8
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SHARED VOTING POWER
8,052,099
|
|
9
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SOLE DISPOSITIVE POWER
277,953
|
|
10
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SHARED DISPOSITIVE POWER
8,052,099
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11
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,330,052
|
|
12
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o |
13
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.0%
|
|
14
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TYPE OF REPORTING PERSON
IN
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 5 of 11 Pages
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1
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NAME OF REPORTING PERSON OR
Charles Fribourg
|
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2
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) x
|
3
|
SEC USE ONLY
|
|
4
|
SOURCE OF FUNDS
OO
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
|
o |
6
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CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
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7
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SOLE VOTING POWER
25,500
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8
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SHARED VOTING POWER
8,088,200
|
|
9
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SOLE DISPOSITIVE POWER
25,500
|
|
10
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SHARED DISPOSITIVE POWER
8,088,200
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11
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,113,700
|
|
12
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o |
13
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.8%
|
|
14
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TYPE OF REPORTING PERSON
IN
|
CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 6 of 11 Pages
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1
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NAME OF REPORTING PERSON OR
Celine Fribourg
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2
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) x
|
3
|
SEC USE ONLY
|
|
4
|
SOURCE OF FUNDS
OO
|
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
|
o |
6
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CITIZENSHIP OR PLACE OF ORGANIZATION
France
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NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING PERSON
WITH
|
7
|
SOLE VOTING POWER
36,101
|
8
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SHARED VOTING POWER
25,500
|
|
9
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SOLE DISPOSITIVE POWER
36,101
|
|
10
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SHARED DISPOSITIVE POWER
25,500
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11
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
61,601
|
|
12
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o |
13
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
less than 0.1%
|
|
14
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TYPE OF REPORTING PERSON
IN
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 7 of 11 Pages
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Paul J. Fribourg
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Chairman, Chief Executive Officer and President
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Michael J. Zimmerman | Vice Chairman | |
Frank W. Baier |
Executive Vice President and Chief Financial Officer
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Teresa E. McCaslin
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Executive Vice President
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David A. Tanner
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Executive Vice President
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Charles A. Fribourg
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Director and Directeur General, Arlon Group S.A., a subsidiary of Continental Grain Company
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Gerald Rosenfeld
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Director
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Stephen R. Volk
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Director
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Morton I. Sosland
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Director
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Henry Kissinger
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Director
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James Wolfensohn
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Director
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Alan Fishman
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Director
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Jim D. Manzi | Director |
CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 8 of 11 Pages
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CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 9 of 11 Pages
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Total
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Average Price
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|||||||||
Entity
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Trade Date
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Transaction
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Shares
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Per Share $
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||||||
Continental Grain Company
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1/7/2013
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Sold
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45,000 | 22.9926 | ||||||
Continental Grain Company
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1/8/2013
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Sold
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45,000 | 22.9413 | ||||||
Continental Grain Company
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1/9/2013
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Sold
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45,000 | 22.7896 | ||||||
Continental Grain Company
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1/10/2013
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Sold
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45,000 | 22.8020 | ||||||
Continental Grain Company
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1/11/2013
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Sold
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45,000 | 22.5791 | ||||||
Continental Grain Company
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1/14/2013
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Sold
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45,000 | 22.6567 | ||||||
Continental Grain Company
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1/15/2013
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Sold
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45,000 | 22.8079 | ||||||
Continental Grain Company
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1/16/2013
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Sold
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45,000 | 22.8130 | ||||||
Continental Grain Company
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1/17/2013
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Sold
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35,000 | 23.0201 |
Arlon Opportunities Master LP
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3/1/2013
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Sold
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117 | 22.0800 | ||||||
Arlon Opportunities Master LP
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3/1/2013 | Bought | 117 | 22.0800 | ||||||
Continental Grain Company | 3/5/2013 | Sold | 439,099 | 22.5047 | ||||||
Continental Grain Company | 3/6/2013 | Sold | 315,000 | 22.3883 | ||||||
Continental Grain Company | 3/7/2013 | Sold | 417,000 | 24.1940 |
CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 10 of 11 Pages
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Exhibit 99.1: | Memorandum to the Board of Directors of Smithfield Foods, Inc., sent from Continental Grain Company, dated March 7, 2013. |
CUSIP No. 832248 10 8
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SCHEDULE 13D |
Page 11 of 11 Pages
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CONTINENTAL GRAIN COMPANY
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|||
By:
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/s/ Paul J. Fribourg
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Name: Paul J. Fribourg
Title: Chief Executive Officer and President
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ARLON OPPORTUNITIES MASTER LP
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|||
By:
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Arlon Opportunities Investors GP LLC,
its General Partner
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By:
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Continental Grain Company,
its managing member
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By:
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/s/ Paul J. Fribourg
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Name: Paul J. Fribourg
Title: Chief Executive Officer and President
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/s/ Paul J. Fribourg
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|||
Paul J. Fribourg
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/s/ Charles A. Fribourg
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|||
Charles A. Fribourg
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/s/ Celine Fribourg
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|||
Celine Fribourg
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CONTINENTAL GRAIN COMPANY
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|||
By:
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/s/ Paul J. Fribourg
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Name: Paul J. Fribourg
Title: Chief Executive Officer and President
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ARLON OPPORTUNITIES MASTER LP
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|||
By:
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Arlon Opportunities Investors GP LLC,
its General Partner
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By:
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Continental Grain Company,
its managing member
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By:
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/s/ Paul J. Fribourg
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||
Name: Paul J. Fribourg
Title: Chief Executive Officer and President
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/s/ Paul J. Fribourg
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|||
Paul J. Fribourg
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/s/ Charles A. Fribourg
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Charles A. Fribourg
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/s/ Celine Fribourg
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Celine Fribourg
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March 7, 2013
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To:
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Board of Directors of Smithfield Foods, Inc.
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From:
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Continental Grain Company
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1.
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We believe it is essential that the Board of Directors of Smithfield engage an independent investment banking firm that can assist the Board in evaluating and implementing the various alternatives we are proposing in this memo.
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2.
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We recognize that management and the Board have access to greater information than we and other shareholders possess. However, we are confident that, after giving these alternatives serious consideration, with the advice of independent professionals, you will have advanced the interests of all shareholders.
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3.
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We hope and expect that this analysis and independent review will have full transparency with the company’s shareholders.
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·
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Analyze splitting the company into three completely independent companies.
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o
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We believe the company operates in three distinct and different businesses:
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§
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1) Hog production;
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§
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2) Fresh pork and packaged meats; and
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§
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3) International (Europe)
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o
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Splitting the company into three pieces with dedicated high quality management teams running each segment separately would unlock significant value.
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§
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Hog production: While vertical integration, traceability, and quality control are valuable, there are many ways to achieve this through supply agreements, as other companies have done (e.g. Hormel, JBS, Tyson, etc.). The hog production segment has produced net negative returns in 3 out of the past 5 fiscal years and uses very significant amounts of the company's capital. It is a major drag on Smithfield’s stock price and multiple. CEO Larry Pope acknowledged this in the most recent earnings call when he said:
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§
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International: There has been well over $1 billion invested in the European businesses (Campofrio, Romania, and Poland) with very little, if any, return until recently. Returns on invested capital remain disappointing. There is no real relationship between these businesses and the US operations of Smithfield. Nor is any real benefit being obtained from trying to get these businesses to work together. A strategic review, again working with professional independent investment banking or consulting firm, should be undertaken to explore how to realize value. Alternatives might include the sale of one or more of these businesses, their merger into one company led by world class European agribusiness and branded marketing management, and/or a spin-off. Campofrio is already a public company and a “pure play” in branded processed meats. Smithfield’s ownership of "new Campofrio" might be spun off to its shareholders, along with new leadership that has the consumer packaged goods experience to maximize the value of this asset.
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§
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US processing and packaged meats businesses: This can be a uniquely valuable piece of Smithfield. Packaged meats now represent 38% of Smithfield’s sales. When fresh processed pork is included, the total exceeds 70% of sales. If run by experienced packaged food and consumer product executives, it can be a very exciting company with good growth potential and a very attractive earnings multiple. Companies such as Hormel and Hillshire Brands are real-time examples of that valuation potential. If Larry Pope is correct, and we believe he is, this segment alone should be worth more than the entire market cap of Smithfield, and even assuming modest values for the production and International pieces, the total should be worth significantly more than the current value of the company.
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§
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China strategy: Smithfield has talked a lot about this key market, where 50 percent of the world's pork is produced and consumed, but very little has been accomplished to date. We believe that there are unique opportunities for Smithfield in China, including agreements for long term supply of US pork; marketing the Smithfield brands in China (something that Hormel has done very successfully); and selective investments in China’s growing modern pork industry, in partnership with first class Chinese companies. Smithfield must have a clear strategy to take part in the growing demand for high quality, safe and nutritious foods in this key market.
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·
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Share repurchase/Dividends
|
|
o
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Smithfield's balance sheet is as strong as it has been in many years and should provide an opportunity to return capital to shareholders in a thoughtful manner. We applaud the repurchase program the company has continued to execute, and believe that follow-on programs should be authorized. It should be continued as long as the balance sheet is not overly leveraged and the stock continues to trade at such low multiples of earnings. This is one of the most effective ways that management can increase shareholder value, essentially allowing long-term shareholders to own an increasingly greater percentage of the company at attractive multiples.
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o
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In addition, a regular cash dividend should be initiated which would support management's assertion that, because of their focus on pork processing and packaged meats, the business has much greater earnings visibility than it did when it was more dependent on hog production. There should be a regular dividend along the lines of what competitors like Hormel or Tyson pay, which would encourage a more stable shareholder base, while returning capital to shareholders.
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·
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Board of Directors
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|
o
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We believe that the addition of several directors with strong backgrounds in agribusiness management, branded consumer packaged goods, value creation, and broad business skills would help the company refocus itself and be an integral part in unlocking the value that lies in Smithfield. Smithfield competes in what is becoming a global industry, its brands are national, yet the board composition reflects the regional focus of yesterday.
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·
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Management
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|
o
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As mentioned above, we applaud many of the positive steps management has taken in recent years. But they have been unable to unlock the real value of this company for the benefit of its owners. The analysis and execution of a new strategy (focused on splitting into three businesses) will require very different skills and abilities. To succeed, we believe it will require the addition of managers with extensive experience in these three areas to bring Smithfield back to the performance level it is capable of.
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o
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Compensation should be tied to shareholder value creation. There is clearly a disconnect in the current compensation plans.
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·
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Conclusion
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|
o
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It's time for Smithfield to get serious about creating shareholder value. This is an exciting time in the world of food and agribusiness. There are many very positive trends and opportunities in the fields in which Smithfield operates. The three pieces of “New Smithfield” can achieve excellence and high returns in each of their focused market segments.
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o
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Six years is sufficient time for a management team to provide real results to its shareholders. We haven't seen those results and believe a new strategy with some new individuals is warranted to bring the company back to the high returns that Smithfield has produced in the past and is capable of producing going forward. Smithfield’s valuation should reflect its full potential. We welcome the opportunity to meet with Smithfield’s Board and management to discuss in more detail the ideas that we have presented.
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