Shuanghui International Holdings Limited and Smithfield Foods, Inc. announced in May that Shuanghui would acquire all outstanding shares of Smithfield for $34.00 per share in cash, an acquisition valued at $4.7 billion. Upon completion, Shuanghui’s purchase of Smithfield would be the largest takeover of a U.S. company by a Chinese company. The size and nature of the deal triggered several regulatory reviews that could have killed the record-breaking acquisition.
The Hart-Scott-Rodino Premerger Notification Program, implemented in 1978, was designed “to avoid some of the difficulties and expense that the [Federal Trade Commission and Department of Justice] encounter when they challenge anticompetitive acquisitions after they have occurred.” Because Shuanghui would hold voting securities and assets valued in excess of $200,000,000, the two companies were required to notify the FTC and Department of Justice of the proposed merger and wait thirty days for review. Critics, including Congressman Randy Forbes (R-Va.), argued the Department of Justice should block the deal because it was anti-competitive and would harm free trade and the domestic food supply. Despite these concerns, the mandated thirty-day waiting period expired without issue, allowing the two companies to proceed. The FTC or the Assistant Attorney General can extend the thirty-day period for an additional thirty days to investigate further. The additional review time was unnecessary because Shuanghui does not hold any other U.S. assets and the acquisition does not give Smithfield a larger share of the U.S. pork market, two characteristics that lessen the likelihood of a monopoly.
Is Pork a National Security Concern?
While the Smithfield-Shuanghui deal did not raise any antitrust flags, the Committee on Foreign Investment in the United States (CFIUS), a little known interagency committee that reviews foreign investment deals for national security concerns, took an especially close look causing some to question whether it would go through as planned. In 2007, Congress broadened the Committee’s power by inserting “critical infrastructure” into the description of covered transactions subject to review for national security concerns. Until this deal, the Committee focused its review powers on transactions dealing with more traditionally sensitive industries like technology, defense, and telecommunications. The deal drew the eye of the Committee because it would put forty percent of the U.S. pork industry in foreign hands. By exercising its review power, the Committee set a precedent by placing “food supply” under the critical infrastructure definition of “systems and assets . . . so vital to the United States that the incapacity or destruction of such systems or assets would have a debilitating impact on national security.”
The Committee cleared the deal of any national security concerns on September 6; however, had there been a finding of national security concerns related to the deal, several other options were available.
Congress granted the Committee the statutory authority to mitigate through the imposition of “any agreement or condition” that has national security concerns. Based on prior reviews, possible mitigation routes could have included notifying relevant U.S. government parties in advance of foreign national visits to the Smithfield locations in the U.S.; requiring a proxy entity such as a subsidiary to perform certain functions for Smithfield; or ensuring only U.S. persons handle Smithfield’s domestic operations. The goal of these mitigation requirements would likely be to address concerns related to the “control of [a] domestic industr[y] . . . by [Chinese] citizens as it affects the capability and capacity of the United States to meet the requirements of national security.” A tainted or disrupted food supply chain would arguably be a direct impairment to the safety and security of the United States and its citizens, but the Committee chose not to mitigate in the deal.
An extreme, but legally acceptable route would be to block the deal. Congress empowered the president to take any action deemed appropriate to “suspend or prohibit” any covered transaction. President Obama last year ordered a Chinese firm divest all interests in a wind farm in Oregon. While the actual reasoning behind President Obama’s order is unknown because of the classified nature of the Committee’s findings, many speculate the underlying reason was the wind farm’s proximity to a U.S. Navy facility. Smithfield has several contracts with the U.S. military and its Norfolk, Virginia headquarters are close to naval bases, but the Committee did not see these as concerns, evidenced by the deal’s mitigation-free clearance. Furthermore, it appears the deal will only lead to exporting of American pork to China relieving any fears about the possibilities of a tainted food supply. This might be another reason why the deal cleared without mitigation.
Blocking a deal is a politically dangerous move because of the appearance of government intrusion into the free-market economy. A president has exercised the presidential blocking authority only twice since the Committee’s construction. Inaction on behalf of the president or the Committee does little to set any type of precedent for future deals. The Committee and president have broad reaching powers under the statute. If another Chinese-American deal in the food industry were to arise, the Committee’s hands are not bound by this previous ruling; each review is a case specific inquiry into the national security implications of the deal. Additionally, the president’s findings upon which he makes a decision, including blocking a deal, are not subject to judicial review. Challenging mitigation or a presidential block on the basis of past Committee action or inaction would be nearly impossible without access to the classified briefings upon which the decisions are made. This deal has set precedent in the sense that it has broadened scope of reviewable transactions by including the food industry in the company of defense, software, and other sensitive technologies. Attorneys with CFIUS practices should take note that similar mergers in the future may be subject to broader regulatory review.
While the two companies cleared the necessary government hurdles, the deal faces one more obstacle – shareholders. Smithfield’s shareholders meet on September 24 for a final vote on the acquisition.
 Press Release, Smithfield Intl. Holdings, Shuanghui International and Smithfield Foods Agree to Strategic Combination Creating Leading Global Pork Enterprise (May 29, 2013), available at ; Saabira Chaudhuri, U.S. Review of Smithfield Takeover by Shuanghui to Take Longer, Wall St. J., July 24, 2013, https://www.wsj.com/articles/SB10001424127887324110404578625691595981114.
 David Benoit, Shuanghu’s Smithfield Buy Would Set China to U.S. Deal Record, Wall St. J., May 29, 2013, https://blogs.wsj.com/moneybeat/2013/05/29/shuanghuis-smithfield-buy-would-set-china-to-u-s-deal-record/.
 Federal Trade Commission, Introductory Guide I – What is the Premerger Notification Program? An Overview (2009), available at .
 15 U.S.C. § 18a(a)-(b) (2012).
 Press Release, Congressman J. Randy Forbes, Forbes Expresses Antitrust Concerns Over Chinese Firm’s Acquisition of Smithfield Foods (June 27, 2013), available at https://forbes.house.gov/updates/documentsingle.aspx?DocumentID=340797.
 Press Release, Smithfield Foods Announces Expiration of HSR Waiting Period for Shuanghui-Smithfield Transaction (July 12, 2013), available at .
 50 U.S.C. app. § 2170(b)(2)(B)(i)(III) (2011).
 50 U.S.C. app. § 2170(a)(6).
 Michael J. De La Merced, U.S. Security Panel Clears a Chinese Takeover of Smithfield Foods, NY Times, September 6, 2013, https://dealbook.nytimes.com/2013/09/06/national-security-panel-approves-smithfield-sale-to-chinese-company/?_r=5.
 50 U.S.C. app. § 2170(i)(1)(A).
 Stephen Paul Mahinka and Sean P. Duffy, “The CFIUS Review Process: Current Issues and Enforcement Trends,” April 25, 2013, .
 50 U.S.C. app. § 2170(f)(2).
 50 U.S.C. app. § 2170(d)(1).
 Rachelle Younglai, Ralls Corps’ Oregon Wind Farms Blocked By President Obama, REUTERS, September 28, 2012, https://www.reuters.com/article/us-usa-china-turbines-idUSBRE88R19220120928.
 Liz Hoffman, All Eyes on Smithfield as CFIUS Clock Ticks Down, Law360.com, September 4, 2013, https://www.law360.com/articles/469377/all-eyes-on-smithfield-as-cfius-clock-ticks-down.
 See De La Merced, supra note 9.
 50 U.S.C. app. § 2170(e).