MILWAUKEE (AP) — Shares of Smithfield Foods Inc. fell on Tuesday after the company said it would offer $250 million in stock to raise capital, and a director who objected to the stock sale resigned.
Paul Fribourg had concerns about diluting shares and did not believe an offering of this size was necessary, Smithfield said in a statement Tuesday. Stock offerings can dilute shareholder value since earnings per share will be spread over a larger number of shares.
Fribourg, who had been on the board since 2007, is chairman, president and CEO of Continental Grain Company, the beneficial owner of approximately 8.8 percent of Smithfield's common stock.
Deutsche Bank-North America analyst Christina McGlone told clients in a note that the offering could hurt earnings per share by 15 cents each a year, assuming shares are sold at $13 each and proceeds are used to accumulate cash.
The nation's largest pork processor and hog producer said it wanted to raise the money to use for working capital and general corporate purposes with a goal of continuing to strengthen its balance sheet.
Shares of Smithfield fell 62 cents, or 4.3 percent, to $13.68 in late-morning trading Tuesday.
McGlone told clients the offering was not surprising, especially given the recent strength of the Smithfield, Va.-based company's stock.
Smithfield shares were approaching $12 a month ago and have been gaining since then.
McGlone estimated that the offering represents about 12 percent of Smithfield's market capitalization.
"The $250 million provides Smithfield with more balance sheet flexibility to weather seasonal weakness and potential risk associated with H1N1 this fall," she said.
Smithfield Foods has been trying to work through a slump in the meat industry brought on by record high ingredient costs last year and an oversupply of meat on the market, which kept prices down. The company has been trimming production, closing plants and cutting jobs, and shifting focus on the more profitable packaged meats business.
