Family Feud at Pork Giant Intensifies as Claims of Founder’s Ousted Son Rejected

Guo Lijun

China’s biggest pork producer has launched a renewed attack on allegations of financial mismanagement made against its founder by one of his sons, the latest step in an intensifying family feud that shaved $1.4 billion off the company’s market value last week.

Hong Kong-listed WH Group Ltd., which owns U.S. meat processing firm Smithfield Foods Ltd., on Monday issued a clarification about allegations of tax evasion and financial mismanagement against Wan Long made by Wan Hongjian, who was removed as an executive director in June for what the company described as “misconduct of aggressive behaviors.”

The bitter family row comes as the group has been hit by turmoil in China’s pork market, which is suffering from falling prices and rising feed costs. The slump in prices has already triggered government intervention including an emergency buying program in June.

Monday’s stock exchange filing follows an initial statement on Aug. 18 that said Wang Hongjian’s claims were “untrue and misleading.” The filing reiterated those comments and responded to five separate allegations made by the son — about the nature of the business and the transfer of funds offshore; bonuses paid after the completion of the acquisition of Smithfield Foods in 2013 and share options awarded in 2017; inflated prices paid for pork imports; the suitability and qualification of Guo Lijun, the company’s CFO who was promoted to CEO earlier in August; and the failure to pay tax on profit from the sale of a stake in Shenzhen-listed unit Henan Shuanghui Investment & Development Co. Ltd. (000895.SZ), which is involved in slaughtering and meat processing.

On Aug. 17, an article (link in Chinese) apparently authored by 52-year-old Wan Hongjian was published under the WeChat account Xinrouye (新肉业), a media outlet that tracks China’s meat processing industry.

The post was triggered by a falling out between father and son after 80-year-old Wan Long stepped down as chief executive on Aug. 12 and passed the reins to chief financial officer Guo Lijun. It included allegations of tax evasion and poor management decisions made by the elder Wan and Guo. The WeChat article led to an 11% slump in WH Group’s shares to HK$5.95 (76 U.S. cents) on Aug. 18, erasing HK$11 billion from its market capitalization.

Wan Hongjian claimed that in 2007, his father was given a 5% stake in Henan Shuanghui from another shareholder, CDH Investments, and then sold it to a company in Hong Kong for $200 million, but that neither transaction was disclosed or taxed. The company said in its Monday statement that both CDH Investments and Wan Long had made written denials of the allegation.

WH Group also responded to allegations made in the WeChat article that in February, Wan Long and Guo had imported nearly 100,000 tons of pork products from the U.S. at above market prices, resulting in a loss of more than 800 million yuan ($123 million) for Shuanghui. The statement said that the prices of the imported meat were the “then prevailing market prices being determined according to the market practice (i) based on the average purchase price of similar products of the same quality of the purchaser(s) in the relevant period; and (ii) with reference to the relevant price of sales of the seller(s) by related parties to non-related parties.”

WH Group also rejected Wan Hongjian’s claim that it had used various schemes to transfer funds from Shuanghui to offshore markets.

The firm stood by its decision to appoint Guo as chief executive officer, saying he was the most suitable candidate to succeed the elder Wan. Guo was appointed an executive director in 2013 and became CFO in 2016, but Wan Hongjian asserted he lacked the competence to lead the company and did not understand Shuanghui’s operations. Guo’s promotion was accompanied by the appointment of Wan Hongwei, Wan’s younger son, as executive director and deputy chairman.

In its first-half earnings report released on Aug. 12, WH Group reported a 2% decline in net profit to $539 million, while revenue grew nearly 6.8% to $13.3 billion on the back of increased sales of packaged meats and pork.

Pork prices, a key item in the basket of goods and services used by the National Bureau of Statistics to calculate the consumer price index, dropped (link in Chinese) 19.3% in the first half of 2021 and 36.5% year-on-year in June alone, data released on July 9 show, as supplies of the meat jumped but consumer demand was sluggish.

Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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