June 16, 2011

Brazil antitrust agency postpones vote on BRF merger

Brazil's antitrust regulator on Wednesday (June 15) postponed its final vote again on the merger of the country's biggest poultry processors to form BRF Brasil Foods after the company requested it once more.

Brazil antitrust regulator Cade had signalled it would block the merger of Perdigao SA and Sadia SA after the leading board member of the agency voted against it and other members indicated they would follow his lead. Board members last week asked for more time to analyse the merger and were set to vote Wednesday (June 15).

Cade delayed the vote this week at the request of BRF, a Cade spokesman said. The vote was rescheduled for June 29.

Wilson Mello, vice president of corporate affairs at BRF, said in Brasilia that it is too soon to say what steps the company will take to satisfy the antitrust agency's concerns. Reports earlier this week said the company would try to negotiate a way around the agency's rejection, which may go as far as selling off one of the brands altogether.

Lawyers for BRF have pointed out the relevance of BRF to Brazil's economy, saying it is the nation's third-largest exporter. BRF is the sixth-largest processed-food company in the world, alongside global giants such as Nestle S.A., Kraft Foods Inc., General Mills Inc. and Kelloggs Co.

JBS SA, the world's biggest beef producer after taking over rival Bertin in 2009, controls about 25% of Brazil's beef market.

BRF, which operates in 140 countries, was formed by the May 2009 merger of Perdigao and Sadia. Perdigao and Sadia had committed to keep their distribution units separate until a final antitrust ruling was made.

Cade's investigation focused on a number of key products including hams, lasagnas, turkey, margarine, sausages and frozen pizzas. In some of these cases, pricing tests suggested BRF would be able to raise prices by up to 40%, according to the report.

Existing competitors are tiny, and the barriers to new entrants are significant, he said. Sadia and Perdigao have the highest prices and yet still outsell all of their competitors in terms of volume.

Shares of BRF, the world's biggest exporter of chicken, were up 2.8% at BRL25.16 (US$15.7) on Wednesday (June 15), but the shares are down about 0.4% this week and about 14% since the beginning of June.