Exhibit 5.1
[Opinion of McGuire, Woods, Battle & Boothe LLP]
[McGuire, Woods, Battle & Boothe LLP Letterhead]
April 15, 1998
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Smithfield Canada Limited
200 Commerce Street
Smithfield, Virginia 23430
Registration Statement on Form S-4, as amended
Nos. 333-46495 and 333-46495-01
Common Stock, Rights and Series B Special Voting Preferred Share
Ladies and Gentlemen:
We have acted as your United States counsel in connection with the
Registration Statement on Form S-4, as amended (the "Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act") relating to the offer and sale by
Smithfield Foods, Inc., a Virginia corporation ("Smithfield Foods") of up to
4,001,479 shares of its Common Stock, $.50 par value per share (the "Shares"),
Rights to Purchase Series A Junior Participating Preferred Stock, par value
$1.00 per share (the "Rights"), to be attached in equal number to the Shares as
described in the Registration Statement, and one Series B Special Voting
Preferred Share, par value $1.00 (the "Series B Preferred Share"). The
Registration Statement also relates to the offer and sale by Smithfield Canada
Limited, an Ontario corporation ("Smithfield Canada"), of up to 4,001,479 shares
of its Exchangeable Shares, without par value, as described in the Registration
Statement.
We have assisted you in your preparation of the Registration Statement
and have examined such questions of law and such corporate records and
documents, statements and certificates of officers of Smithfield Foods and
Smithfield Canada and such other information as we have deemed necessary to the
issuance of this opinion. Based on the foregoing, we are of the opinion that:
Smithfield Foods, Inc.
Smithfield Canada Limited
April , 1998
Page 2
1. The Shares have been duly authorized and, when duly issued and sold
as contemplated by the Registration Statement, will be validly issued, fully
paid and nonassessable;
2. Regarding the corresponding Rights to be duly issued, we reaffirm
our opinion as given to the Smithfield Foods' Board of Directors and confirmed
in our letter of September 2, 1997, a copy of which is attached; and
3. When the terms of the Series B Preferred Share as set forth in the
Registration Statement have been duly determined and filed with the State
Corporation Commission of the Commonwealth of Virginia in accordance with the
Virginia Stock Corporation Act, and duly issued and sold as contemplated by the
Registration Statement, then the Series B Preferred Share will be duly
authorized, validly issued, fully paid and nonassessable.
In rendering the above opinions, we have assumed that the respective
certificates for the Shares, the Rights and the Series B Preferred Share will be
in appropriate form and appropriately executed, and that the signatures on all
documents examined by us are genuine, which assumptions we have not
independently verified.
Our opinion is limited to the effect of the laws of the Commonwealth of
Virginia.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the statement made in reference to our firm under
the caption "Legal Matters" therein. We do not admit by giving this consent that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe LLP
[McGuire, Woods, Battle & Boothe LLP Letterhead]
September 2, 1997
Board of Directors
Smithfield Foods, Inc.
999 Waterside Drive, Suite 900
Norfolk, Virginia 23510
Gentlemen:
This will confirm our opinion, given orally to the Board of Directors
(the "Board") of Smithfield Foods, Inc., a Virginia corporation (the "Company"),
with respect to the Board's adoption of a Shareholder Rights Plan (the "Plan")
on the terms set forth in the Rights Agreement (the "Rights Agreement") which
was submitted to the Board prior to adoption. Under the Plan, the Board of
Directors has authorized the issuance by the Company of rights (the "Rights") to
purchase 1/1,000th of a share of the Company's Series A Junior Participating
Preferred Shares, $1.00 par value per share (the "Series A Preferred Shares"),
as a dividend distribution to holders of the Common Stock, $.50 par value per
share (the "Common Shares"), of the Company.
In connection with this opinion, we have reviewed the Company's
Articles of Incorporation, as amended, and Bylaws; the form of Rights Agreement
and the resolutions adopted by the Board of Directors on August 28, 1997
providing among other things for the distribution of the Rights and approving
the Rights Agreement; and such other matters as we consider necessary. We have
examined those Virginia statutes and judicial decisions as we have deemed
relevant. Although we have also examined certain statutes and judicial decisions
from other jurisdictions, we express no opinion herein concerning the laws of
any state other than Virginia.
Summary of the Plan
Each Right issued under the Plan will entitle the holder to purchase
1/1,000th of a share of Series A Preferred Shares for $37.50, subject to certain
anti-dilution adjustments. The Rights are not exercisable, and are not
transferable separately from the Common Shares, until the "Distribution Date,"
which is the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 20% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors of the Company prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 2
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Common Shares. The Rights will expire on
May 31, 2001, unless such date is extended or unless the Rights are earlier
redeemed or exchanged by the Company.
After the Distribution Date, the Rights are exercisable and separately
transferable. The purchase price payable, and the number of Series A Preferred
Shares or other securities or property issuable, upon exercise of the Rights are
subject to adjustment in certain circumstances to prevent dilution, and in the
event of a stock split of the Common Shares or a stock dividend on the Common
Shares payable in Common Shares or subdivisions, consolidations or combinations
of the Common Shares occurring prior to the Distribution Date. Because of the
nature of the Series A Preferred Shares' dividend, liquidation and voting
rights, the value of a one one-thousandth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
At any time prior to the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 20% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.0001 per Right, which may be made
effective with such conditions as the Board of Directors in its sole discretion
may establish, and as a result of which the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price. Until a Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including, without limitation,
the right to vote or to receive dividends.
If the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of Common Shares having a market value of two times the
exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 3
group which will have become void), in whole or in part, at an exchange ratio of
one Common Share, or one one-thousandth of a Preferred Share (or of a share of a
class or series of the Company's preferred shares having equivalent rights,
preferences and privileges), per Right, subject to adjustment.
Reasons for the Plan
We understand that, given the present ease of consummating an
unsolicited takeover of a major corporation, the Board believes that adoption of
the Plan will make the Company less vulnerable to abusive and unfair takeover
tactics by giving the Board the time and flexibility to ensure that all
shareholders are protected in their right to retain their investment, or to
secure full value for it, while not precluding a fair acquisition of the
Company. Although we understand that the Company has no knowledge that any
person or group is presently engaged in such tactics with respect to the
Company, the Board is concerned that present law might not provide adequate
protection against such tactics.
We understand that the Board's principal purpose in adopting the Plan
is to encourage any potential acquiror to negotiate in advance with the Company,
thereby enabling the Board to act in the best interests of all the shareholders.
The Board has acknowledged that the Plan is not intended to deter or prevent an
offer which would be in the best interests of all shareholders or to affect
adversely any person's or group's ability to obtain representation on or control
of the Company's Board of Directors through proxy contests.
Matters Considered by the Board
The Board of Directors considered proposals similar to the Plan and
matters related thereto at a meeting held on August 28, 1997. The directors were
assisted in their deliberations not only by officers of the Company but also by
independent legal counsel. Factors discussed during this meeting included (i)
the takeover environment generally and as it relates to food processing
companies; (ii) the vulnerability of the Company to a takeover generally and to
particular takeover tactics, in light of present law and existing provisions of
the Company's Articles of Incorporation and Bylaws; (iii) the financial and
other characteristics of the Company which could make the Company an attractive
target; (iv) the provisions, purposes and potential effects of the Plan; (v)
whether the Plan is reasonably related to and effective in accomplishing its
intended purposes; (vi) the effect of the Plan, if any, on potential offers for
all of the Common Shares; (vii) the redemption features of the Plan, including
the possibility that the Rights might become non-redeemable and the consequences
thereof in obtaining a fair price for all shareholders in a subsequent
negotiated
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 4
transaction; (viii) the potential effect of the Plan on the market price of the
Common Shares; (ix) whether the exercise price under the Rights is reasonably
related to the long-term value of the Company; and (x) the terms and surrounding
circumstances of the Shareholder Rights Plan adopted and maintained by
Smithfield Foods, Inc., a Delaware corporation, since May 8, 1991.
The Board of Directors also considered that Virginia has (i) a statute
prohibiting a holder of at least ten percent of its voting shares, who acquires
such percentage without prior approval by the board of directors, from carrying
out certain significant transactions with the corporation for three years after
the acquisition of such percentage unless the transaction is approved by the
majority of the disinterested directors and the holders of two-thirds of the
shares other than the shares of such holder and (ii) a statute which provides
that under certain circumstances shares acquired by a person will have no voting
rights unless voting rights are granted by a resolution adopted by the
shareholders. We understand that the Board of Directors believes that these
statutes show that public policy in Virginia recognizes that the acquisition of
a ten percent or greater interest without Board approval presents a possible
threat to the corporation and its other shareholders, and that the Plan
supplements the protection provided by these statutes by helping to ensure that
shareholders realize the full long-term potential value for their Common Shares.
It is our understanding that the Board has concluded that the Rights
(i) serve a legitimate corporate purpose and are reasonably related to
accomplishing that purpose, (ii) have an exercise price which is reasonably
related to the long-term value of the Company, (iii) are in the best interests
of the Company and its shareholders, and (iv) have not been proposed for the
purpose of perpetuating the directors' or management's control over the Company.
Legal Authorization of the Rights
The Virginia Stock Corporation Act authorizes the board of directors of
a corporation to issue rights, options and warrants for the purchase of shares
of the corporation on such terms as it may approve, except in limited
circumstances not applicable here. Section 13.1-646 of the Virginia Code
provides that:
A. Unless reserved to the shareholders in the articles of
incorporation and subject to the provisions of ss. 13.1-651, a
corporation may create or issue rights, options or warrants for the
purchase of shares of the corporation upon such terms and conditions
and for such consideration, if any, and such purposes as may be
approved by the board of directors. (emphasis added)
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 5
B. Notwithstanding the provisions of subsection A of ss. 13.1-638,
the terms and conditions of rights, options or warrants created or
issued by a corporation may include, without limitation, restrictions
or conditions that preclude or limit the exercise, transfer or receipt
thereof by designated persons or classes of persons or that invalidate
or void such rights, options, or warrants held by designated persons or
classes of persons. Any action or determination by the board of
directors with respect to the issuance, the terms and conditions or
redemption of rights, options, or warrants shall be subject to the
provisions of ss. 13.1-690 and shall be valid if taken or determined in
compliance therewith. (emphasis added)
The terms of Section 13.1-646 are broad, and we have not found any
legislative history or judicial decision indicating that the language of the
statute should be narrowly construed so as to deprive boards of directors of the
authority to issue rights similar to those contemplated under the Plan. The
Virginia Bar Association/Virginia State Bar Title 13.1 Joint Bar Committee's
Commentary (revised 1992) relating to a 1990 amendment to Section 13.1-646
indicates that the purpose of revised Section 13.1-646 is to permit a board of
directors to issue rights similar to those contemplated by the Plan. In
addition, a Federal district court case, WLR Foods, Inc. v. Tysons Foods, Inc.,
861 F. Supp. 1277 (W.D. Va. 1994) ("WLR II") (holding that Section 13.1-646 and
certain other statutes were not preempted by federal statute) suggests that
Section 13.1-646 authorizes a board of directors to issue rights similar to
those contemplated by the Plan. We also note that similarly broadly-worded
provisions of the Delaware General Corporation Law have been held by the
Delaware Supreme Court to authorize a board of directors to issue rights with
features similar to those of the Plan. Moran v. Household International, Inc.,
500 A.2d 1346 (Del. 1985) ("Household"); Revlon, Inc. v. MacAndrew & Forbes
Holdings, Inc. 506 A.2d 173 (Del. 1986) ("Revlon"").
Based on the language of the Virginia statute, related commentary, the
Household and Revlon cases and the absence of contrary Virginia precedent, we
believe that a Virginia court should hold that the Plan and the issuance of the
Rights are authorized by Section 13.1-646.
Standard of Conduct of the Board of Directors
Directors of a corporation stand in a fiduciary relationship to their
corporation, and therefore impliedly to their shareholders, and have a duty to
exercise their good faith business judgment in making decisions. To fulfill
their obligations, directors must have access to and consider reasonably
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 6
available information relevant to their decisions. Directors are generally
protected against liability for actions taken in exercise of their duties as
directors by the business judgment rule. In general, this rule accords a
presumption of validity to directors' actions unless it is shown that the
directors acted in bad faith, fraudulently or in their own self interest. Courts
applying Virginia law have recognized the business judgment rule. Penn v.
Pemberton & Penn, 189 Va. 649, 53 S.E. 2d 823 (1949); Abella v. Universal Leaf
Tobacco Co. Inc., 495 F. Supp. 713 (E.D. Va. 1980), reconsidered at 546 F. Supp.
795 (E.D. Va. 1980).
The Virginia Stock Corporation Act contains a statutory standard of
conduct for directors. If a director performs his duties in accordance with this
standard of conduct, he is not liable for any action taken as a director. Thus
the General Assembly has codified the business judgment rule for directors of
Virginia corporations.
Section 13.1-690 of the Virginia Code sets forth the general standard
of conduct for directors and provides as follows:
A. A director shall discharge his duties as a director, including
his duties as a member of a committee, in accordance with his good
faith business judgment of the best interests of the corporation.
(emphasis added)
B. Unless he has knowledge or information concerning the matter in
question that makes reliance unwarranted, a director is entitled to
rely on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented
by:
1. One or more officers or employees of the corporation whom
the director believes, in good faith, to be reliable and
competent in the matters presented;
2. Legal counsel, public accountants, or other persons as to
matters the director believes, in good faith, are within the
person's professional or expert competence; or
3. A committee of the board of directors of which he is not a
member if the director believes, in good faith, that the
committee merits confidence.
C. A director is not liable for any action taken as a director, or
any failure to take any action, if he performed the duties of his
office in compliance with this section. (emphasis added)
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 7
D. A person alleging a violation of this section has the burden of
proving the violation.
Commentary from the drafters of this section reflects an intention to
simplify the standard of conduct and to avoid measuring the conduct against a
reasonable man standard. Instead courts should look to the directors' good faith
decision of what is in the best interests of the corporation. The drafters
believed that under this standard, a director could be more certain that he is
acting properly than under previous judicial decisions.
Several Virginia cases have considered the applicable standards under
Section 13.1-690. Sandberg v. Virginia Bankshares, Inc., 891 F.2d 1112 (4th Cir.
1989) ("Sandberg""), reversed on other grounds 501 U.S. 1083, 111 S. Ct. 2749,
115 L.Ed.2d 929 (1991); WLR Foods, Inc. v. Tyson Foods, Inc., 857 F.Supp. 492
(W.D.Va. 1994) ("WLR I"); WLR II; and WLR Foods, Inc. v. Tysons Foods, Inc., 869
F.Supp. 419 (W.D.Va. 1994) ("WLR III"). The WLR I court, in analyzing the
provisions of Section 13.1-690(B), stated:
This suggests that good faith is to be measured by the
directors' resort to an informed decision making process, not
by the rationality of the decision ultimately taken. Of
course, resort to the process must itself be undertaken in
good faith: the directors must believe in good faith that
their advisors are competent to render the advice sought, and
they must be aware of no facts which would make reliance on
that advice unwarranted.
WLR Foods, Inc. v. Tysons Foods, Inc., supra, 857 F. Supp. 492
at 494 (1994).
In addition, the court confirmed that, "[a]s to conflicts arising out of a
hostile takeover, the Virginia statutory scheme is clear that [Section] 13.1-690
sets the standard for director actions taken in response to such a takeover." Id
at 495. In WLR III, the court suggested that Section 13.1-690 is broader than
analogous statutes in other states. The court noted that the Business Judgment
Statute should be interpreted in accordance with its plain language, adding the
observation "[t]hat the Business Judgment Statute may appear to offer more
protection for directors than do most or all analogous statutes in other states
does not alter its plain language." WLR Foods, Inc. v. Tysons Foods, Inc., 869
F.Supp. 419 at 424.
The WLR III court found that the directors of WLR Foods, Inc. had acted
in compliance with Section 13.1-690 in connection with approving a
discriminatory shareholder rights plan at a time when a hostile tender offer was
pending. WLR I, WLR II and WLR III (collectively, the
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 8
"WLR cases") were appealed to the Fourth Circuit Court of Appeals, which
affirmed them in WLR Foods, Inc. v. Tysons Foods, Inc., 65 F. 3rd 1172 (1995).
Numerous cases from other jurisdictions have examined director conduct
in the context of actions of boards of directors in issuing rights similar to
those contemplated in the Plan. The most notable of these cases is the Household
case, in which the Delaware Supreme Court held that the business judgment rule
as construed in that state applies to the adoption of a shareholder rights plan.
The Household court also recognized the propriety of adopting such a plan in
preparation for the possibility of an unfriendly takeover attempt:
...pre-planning for the contingency of a hostile takeover
might reduce the risk that, under the pressure of a takeover
bid, management will fail to exercise reasonable judgment.
Therefore, in reviewing a preplanned defensive mechanism it
seems even more appropriate to
apply the business judgment rule.
Moran v. Household International, Inc., supra, 500 A.2d at
1350 (1985) (emphasis added).
The Delaware Supreme Court in the Revlon case determined that the
adoption of a rights plan similar to the Plan was within the power of the board
of directors and was valid under the circumstances existing at the time of its
adoption. Courts applying laws of other jurisdictions have also followed
Household and Revlon to reach similar conclusions. See, e.g. Dynamics Corp. of
America v. CTS Corp., 637 F Supp. 406 (N.D. Ill. 1986), aff'd, 794 F. 2d 250
(7th Cir. 1986) (applying Indiana law (which was assumed to follow Delaware
law), the court dismissed arguments relating to the power of a board of
directors to adopt the rights plan under review, although it issued a
preliminary injunction against the plan on the grounds that under the
circumstances the particular plan was unreasonable in relationship to the
particular threat to the corporation); Gelco Corp. v. Coniston Partners, 652 F.
Supp. 829 (D. Minn. 1986), affirmed in part and vacated in part on other
grounds, 811 F.2d 414 (8th Cir. 1987) (applying Minnesota law); A. Copeland
Enterprises, Inc. v. Guste, 706 F. Supp. 1283 (W.D. Tex. 1989) (applying Texas
law); and Amanda Acquisition Corporation v. Universal Foods Corporation, 708 F.
Supp. 984 (E.D. Wis. 1989) affirmed on other grounds, 877 F.2d 496 (7th Cir.),
cert. denied 493 U.S. 955 (1989) (applying Wisconsin law).
In addition, the Delaware Supreme Court has recognized that a board, in
the exercise of its business judgment, may manage a company to achieve the
long-term goals the board sets and, consequently, may reject a takeover bid in
order to continue following its long-term business plan.
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 9
Paramount Communications Inc. v. Time, Inc., 571 A.2d 1140 (Del. 1989). The
Virginia Stock Corporation Act provides in Section 13.1-728.9, as part of
Virginia's control share acquisition statute (Sections 13.1-728.1 through
13.1-728.9 of the Virginia Stock Corporation Act), that:
In the case of any action taken or not taken by directors, the
provisions of ss. 13.1-690 shall apply, and, in determining
the best interests of the corporation, a director may consider
the possibility that those interests may best be served by the
continued independence of the corporation.
Given the broad authorization contained in Section 13.1-646 with
respect to the power of a board of directors to create and issue rights on such
terms as it determines, the provisions of Section 13.1-690 which protect
directors from liability for actions taken in exercise of their good faith
business judgment of the best interests of the corporation, the WLR cases, and
the application of 13.1-690 in WLR III to uphold adoption of a plan while a
hostile tender offer was pending, we believe a Virginia court should apply the
Household and Revlon decisions and their reasoning to the decision of the Board
of Directors to adopt the Plan and to issue the Rights.
Opinion
Based upon the foregoing, we are of the opinion that a court applying
Virginia law should hold that:
1. The adoption of the Plan and declaration of the Rights dividend
distribution was a matter properly within the business judgment of the Board of
Directors of the Company.
2. All corporate action required under the laws of Virginia has been
taken (i) for the authorization of issuance of the Rights in accordance with the
terms of the Rights Agreement, (ii) for the authorization of issuance of the
Series A Preferred Shares in accordance with the Articles of Incorporation, as
amended, of the Company, and (iii) for the Rights, when issued, to be validly
issued.
Board of Directors
Smithfield Foods, Inc.
September 2, 1997
Page 10
This opinion is limited to the adoption of the Plan by the Board of
Directors. The opinion set forth in paragraph 2 is limited to the valid issuance
of the Rights under the corporation laws of the Commonwealth of Virginia. We
have not been asked to, and accordingly do not, express any opinion with respect
to any other aspect of the Rights or the enforceability of any particular
provisions of the Rights Agreement.
Any further action or inaction by the Board of Directors with respect
to the Plan, including a decision relating to the redemption of the Rights, will
be judged in light of all the relevant facts and circumstances applicable at the
time.
Very truly yours,
/s/ McGuire, Woods, Battle & Boothe, L.L.P.