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Brazil Food and Drink Report Q4 2009
Business Monitor International, Aug 2009, Pages: 83
Business Monitor International's Brazil Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's food and drink industry.
After several months of negotiations Sadia and Perdigão, two of Brazil’s largest food firms, announced they were to combine their operations in May 2009. Under the terms of the deal Perdigão will take over Sadia and will be renamed Brasil Foods (BRF). Sadia Shareholders will receive 0.1392998 shares in BRF for every Sadia share they currently own. Although the deal is being widely reported as a merger the details make it clear that it is really an acquisition, with Perdigão’s existing shareholders retaining a majority holding in the new company.
The swallowing of Sadia by one of its rivals represents an ignominious exit for one of Brazil’s largest food firms and can be attributed to a disastrous foray into the world of derivatives, or financial ‘weapons of mass destruction’ as they have been labelled by investment guru Warren Buffet. Sadia was caught out by a sharp devaluation of the Brazilian real following the global financial crisis as the company had been hedging to guard against movements in the opposite direction.
The sectors in which BRF will assume a dominant position include processed meat, frozen pizza, margarine and refrigerated pasta. Ordinarily such a strong position would raise the heckles of Brazil’s competition commission. However, with the future of Sadia – a company that employs around 40,000 people – in doubt if the deal does not go ahead, the consolidation is believed to have the tacit support of the government and therefore represents an unrivalled opportunity for BRF to emerge as a clear market leader in the Brazilian food sector.
If the merger between Sadia and Perdigão does get the approval of the country’s competition authorities, the scale and product range of BRF will certainly represent a formidable challenge to both domestic players and multinational operators. The move is therefore likely to prompt further consolidation in the Brazilian food sector as rival businesses attempt to replicate BRF’s scale and in June 2009 meat processor Marfrig announced it is to buy a domestic turkey business from France-based poultry giant Doux.
Marfrig also recently said it is considering potential mergers to shore up its position and revealed it is in discussion with a number of firms including Bertin, a leading beef processor and exporter with revenues in 2007 of BRL6.4bn (US$3.1bn).
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