Spanish packaged meat specialist Campofrio Alimentacion said Wednesday it is negotiating a merger with Smithfield Foods' main European subsidiary to create a pan-European group with annual sales in excess of 2 billion euros (US$3.12 billion).

The merged company would trade under Campofrio's brand name and the entity would be controlled jointly by the Spanish company and Groupe Smithfield Holdings, a Paris-based subsidiary jointly controlled by the US group and Oaktree Capital Partners.

Campofrio would retain 51.5 percent of the shareholding in what would be an all-share deal valuing the new entity at around 1 billion euros (US$1.56 billion).

If the deal goes ahead, Campofrio would issue new shares to Groupe Smithfield Holdings, which would then fuse its assets into the Spanish company, Campofrio spokesman Alfredo Sanfeliz Mezquita told the Madrid stock exchange Wednesday in a statement