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All questions refer to the acquisition of Smithfield Foods by Shuanghui. You can find information on the deal in the newspaper article http://dealbook.nytimes.com/2013/05/29/smithfield-to-be-sold-to-shuanghui-group-of-china/ and information on Smithfields in the slides attached.

EPS P/E market cap (T KRW)
Hyundai E&C 3,599 10.52 4.215
GS E&C -667 N/A 3.13
Daelim Industrial Co Ltd/td> -11,048.28 N/A 3.13
Cheil Industries 1,331.16 115.47 20.75
Samsung C&T 1,651.00 33.7 8.71

Question 1 (30 Marks)

Part (A): Discuss the reasons behind the takeover bid. What are the risks facing Shuanghui if it does not acquire Smithfields? What are the risks that it enters because of the takeover bid?

(15 Marks)

Part (B): Shuanghui pays the acquisition in cash. Discuss the potential costs and benefits of financing an acquisition with cash versus stock. What are potential reasons why Shuanghui decided to pay in cash?

(15 Marks)

Question 2 (30 marks)

How much is Smithfields’ equity worth? How does your estimate compare to the $4.7 billion that Shuanghui paid? Use a discount rate of 10%. State your assumptions clearly and discuss how much your answer is sensitive to them.

Question 3 (40 marks)

Smithfield reduced its debt by half and returned $576 million of cash to shareholders in the last four years. Evaluate this strategy. How do such restructuring mechanisms affect shareholder value? What could be Smithfield’s rationale for undertaking these two projects, especially simultaneously?        Was it successful?