Goldman Sachs Group Inc. (GS) lost a role on one of the most
significant merger-and-acquisitions deals this year--the sale of
Smithfield Foods Inc. (SFD) to China's Shuanghui International
Holdings Ltd.--due to its investment in Shuanghui, according to
people familiar with the matter.
Goldman was forced to relinquish a role it had been promised
advising Smithfield on a sale of the company when the Virginia
company learned that Goldman owns a stake in Shuanghui, according
to people familiar with the matter. Shuanghui announced late last
month that it would acquire Smithfield, the world's largest pork
processor, for $4.7 billion. If completed, it would be the
biggest-ever acquisition of a U.S. company by a Chinese
company.
Smithfield learned about Goldman's investment in Shuanghui, held
through an investment subsidiary of the bank, early in the talks
that led to the deal with Shuanghui and was taken by surprise by
the development, the people said. Smithfield kept Goldman as an
advisor limited strictly to shareholder activism.
The episode is latest example of Goldman, considered one of the
most formidable investment banks on Wall Street, stumbling over
potential conflicts in deals. Goldman officials, including current
Chief Executive Lloyd Blankfein, have long said that conflicts are
a fact of life in the securities business but that the firm manages
them effectively.
In addition to the embarrassment such situations can cause a
firm, they can also cost real money. Barclays PLC, which served as
Smithfield's adviser on the Shuanghui deal, likely earned a hefty
fee measured in the millions if not tens of millions of dollars for
its work.
Before the deal was announced, Goldman had been advising
Smithfield on how to react to a big shareholder, Continental Grain
Co., which had been pushing for a breakup of the company, according
to people familiar with the matter. That assignment entitled
Goldman to a role advising Smithfield should the company be sold,
according to a public filing Smithfield made on the deal Tuesday.
Smithfield alluded to the situation in the filing, without naming
the bank, but the "financial advisor" it mentions is Goldman, the
people familiar with the matter said.
"Smithfield became aware that the financial advisor that had
been retained with regard to shareholder activism issues, through
one of its affiliates, had a relationship with" Shuanghui, the
filing says. It says Smithfield determined that it would be
inappropriate for the Goldman to provide advice on the sale.
Write to Sharon Terlep at sharon.terlip@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires