Smithfield Foods greenshoe fully exercised, lifts 4% five-year convertibles to $400 million

By Devika Patel

Knoxville, Tenn., July 8 - Underwriters for Smithfield Foods Inc.'s 4% five-year convertible senior notes notified the company that they will exercise their over-allotment option in full for $50 million more of the notes, increasing the size of the issue to $400 million, the company said in an 8-K filed Tuesday with the Securities and Exchange Commission.

As previously reported, the company sold the convertibles at par on July 1 via joint bookrunners Citigroup, Goldman, Sachs & Co. and J.P. Morgan Securities Inc.

The notes have an initial conversion premium of 30% and a conversion price of $22.68, which equals a conversion ratio of 44.0820.

The notes are non-callable for life with no puts. They have dividend protection and acquisition make-whole protection via a table.

Proceeds will be used to repay one of the company's short-term credit lines and its U.S. revolving credit agreement. A $45.1 million portion of the proceeds will go to set up hedge and warrant transactions that Smithfield expects to enter into with affiliates of certain underwriters. Those transactions will raise the effective conversion premium from Smithfield's point of view to 75%.

Receipt of net proceeds from the offering would also result in termination of the commitments of the lenders under a bridge facility that Smithfield put in place pending the sale of its beef operations, a transaction it expects will close during its 2009 fiscal second quarter.

Related to the warrant transactions, there will be a concurrent issue of 7 million shares being sold to Starbase International Ltd., a subsidiary of Cofco.

Based in Smithfield, Va., the company is a meat processing and packaging concern.

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