Smithfield to Review Letter From Starboard

Smithfield Foods Inc. (SFD) said it will review a letter from a major investor that is pressuring the pork producer to explore a breakup instead of following through with its planned takeover by Shuanghui International Holdings Ltd., but said it continues to believe the proposed merger is in the best interests of the company and its shareholders.

Activist investment fund Starboard Value LP said in the letter, which was sent to Starboard's board Monday, that it had taken a 5.7% stake in the world's largest hog farmer and pork processor and urged the company to consider splitting up.

Virginia-based Smithfield agreed last month to a $4.7 billion offer from Shuanghui International Holdings Ltd. in a deal that would mark the biggest Chinese takeover of a U.S. company.

In the letter, Starboard argued that Smithfield would be worth more if it were broken up into three parts--U.S. pork production, hog farming and international sales of fresh and packaged meats--and then sold.

In response, Smithfield reaffirmed its recommendation that its shareholders approve the Shuangui merger. Smithfield said the combination with Shuanghui provides Smithfield shareholders with "significant, immediate and certain" cash value for their investment. It said the company's board considered several different separation scenarios and is pleased with the outcome of the process it followed leading to the planned Shuanghui merger.

Smithfield is the latest high-profile battle for Starboard since the fund was spun off from the Cowen Group in 2011. Starboard challenged AOL Inc. with a proxy but lost its attempt to elect directors when shareholders opted to stick with management's team.

Shares of Smithfield closed at $33.08 and were unchanged after hours. The stock is up 72% over the past 12 months.

-- Sharon Terlep contributed to this story.

Write to Debbie Cai at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires