The Committee on Foreign Investment in the United States (CFIUS) has cleared the purchase by Shuanghui International Holdings Limited, a Chinese company based in Hong Kong, of Smithfield Foods, Inc., a US corporation based in Virginia. Smithfield is the world’s largest pork processor and hog producer, with extensive domestic and foreign operations. It is also the leader in numerous packaged meats categories in the United States. The transaction is valued at $7.1 billion.

CFIUS’s clearance, announced September 6, 2013, paves the way for the largest acquisition ever of a US company by a Chinese entity. Coming despite opposition by US lawmakers over possible food safety and security issues, CFIUS’s clearance may encourage increased foreign direct investment in the United States, including by Chinese companies.

CFIUS is an inter-agency US government body that is chaired by the Department of the Treasury. It is tasked with reviewing proposed transactions that could result in control of a US business by a foreign person and threaten to impair the national security. Although seeking CFIUS review is voluntary, doing so is considered prudent in many instances. CFIUS reviews take a minimum of 30 days, but may be extended by CFIUS for an additional 45 days of investigation if national security issues cannot be resolved by the end of the initial 30 days of review.

CFIUS has the statutory authority to recommend that the President suspend or block transactions that threaten to impair the national security. Among other factors, CFIUS considers potential national security-related effects from the foreign acquisition of critical technologies or infrastructure. CFIUS is not authorized to evaluate the purely economic effects of foreign acquisitions.

By law, the CFIUS review process is confidential and CFIUS officials do not comment on the bases for CFIUS decisions. CFIUS approves the vast majority of reviewed transactions; only a small number of high-profile cases have either been rejected or withdrawn after CFIUS raised objections.

Shuanghui and Smithfield first announced the transaction in May of this year. They opted to submit the transaction for CFIUS approval. The transaction immediately stirred controversy.

In a hearing held in July, members of the US Senate Committee on Agriculture expressed concerns over the transaction’s potential negative effects. In a letter to Treasury in advance of the hearing, certain committee members wrote that “any CFIUS review of this transaction should look beyond any direct impact on government agencies and operations to the broader issues of food security, food safety, and biosecurity.” Smithfield’s CEO testified at the hearing and assured legislators that the transaction would have no impact on US food supply or safety. Following the hearing, according to public reports, senior administration officials briefed senators on the CFIUS review process, including how CFIUS assesses US national security risks in transactions involving sectors such as food and agriculture, which are not normally the subject of CFIUS reviews.

CFIUS eventually extended its review beyond the initial 30-day period to include an additional investigation phase. It is unknown to what extent other agencies, such as the Department of Agriculture, were included in the CFIUS process. According to reports, however, CFIUS’s clearance of the transaction contained no mitigation conditions, confirming that it was not viewed as implicating significant national security considerations. While it is not clear to what extent concerns over food safety and supply were addressed in the investigation, the absence of mitigation conditions suggests that any lingering concerns were adequately resolved or perhaps not considered material to CFIUS’s review.

Smithfield’s shareholders are scheduled to vote on the transaction at a special shareholders meeting on September 24, 2013. Shuanghui and Smithfield reportedly expect the transaction to close shortly thereafter.

For more information on the CFIUS process and US foreign investment regulation more generally, please contact Timothy J. Keeler, Simeon M. Kriesberg, or Jeffery C. Lowe.