May 20, 2009


Perdigao takes over Sadia


Perdigao SA, Brazil's largest food company, will take over rival Sadia SA in a share-swap transaction that will form the world's biggest poultry processor by market value, overtaking Tyson Foods Inc. of the US.


Perdigao will change its name to BRF Brasil Foods SA and incorporate Sadia shares owned by HFF Participacoes SA, a holding company formed by investors who have more than 51 percent of Sadia's voting stock, according to Perdigao. in a statement to Brazil's securities regulator. The new company will also sell 4 billion reais ($1.94 billion) of shares.


Perdigao pursued a takeover of its smaller rival after Sadia posted the first annual loss in its 65-year history because of wrong-way bets on the Brazilian currency. The combined company would be valued at about US$5.3 billion, based on yesterday's market value for each, compared with US$4.97 billion for Springdale, Arkansas-based Tyson Foods.


The stock had risen a lot before the announcement and was a little stretched, said Carlos Camacho, who helps manage $1 billion in assets at GAP Asset Management in Rio de Janeiro.


Perdigao slumped the most since March 24 in Sao Paulo trading. It fell 2.31 reais, or 6.4 percent, to 33.99 reais. Sadia fell 23 centavos, or 5.1 percent, to 4.32 reais, after earlier declining as much as 9.7 percent.


Controlling shareholders of Sadia will get about 1.4 billion reais in shares of the new company, Sadia Chairman Luiz Fernando Furlan said. The new company may have about 30 billion reais of sales a year "shortly" and would have a cost advantage over competitors including Tyson, Perdigao Chief Financial Officer Leopoldo Saboya said.


Perdigao shareholders will have 68 percent of the new company and Sadia's 32 percent. Brazilian pension fund Previ, which currently owns shares of both, will hold about 12 percent.


The new company will be co-chaired by Perdigao Chairman Nildemar Secches and Sadia's Furlan.


Combining the two companies will generate 2 billion reais of cost savings in distribution and production, according to Denise Messer, an equity analyst at Brascan Corretora in Rio de Janeiro. The two companies estimate that the potential cost savings could be as much as double that figure.


HFF, whose number of shares will be equal to the number of Sadia voting shares its owners hold, will receive 0.166247 voting share in Brasil Foods for each HFF share. Perdigao will also offer to incorporate all of Sadia's shares, giving 0.132998 voting share per Sadia voting or preferred stock.


HFF will name three of Brasil Food's 11 board members, including a co-chairman, Perdigao said.


Perdigao overtook Sadia as Brazil's biggest food company in 2007, a year after rejecting a 3.9 billion-real takeover bid from its competitor. The failed offer prompted Perdigao to buy poultry and dairy producer Eleva Alimentos SA. The company previously bought margarine brands from Rotterdam-based Unilever NV and the meat-processing unit of Cebeco Groep BV.


Perdigao, founded 75 years ago by Italian immigrants to Brazil, sells products including poultry, pizza and lasagna in more than 110 countries and has more than 55,000 employees. The company's brands include the namesake Perdigao, Batavo and Perdix. Sadia, whose name in Portuguese means "healthy," was founded in 1944 and makes more than 2,500 types of food.


The combined new company would become the third-biggest meat processor in the Americas by sales after Tyson and Brazilian competitor JBS SA, according to Mariana Peringer, an equity analyst at Banco do Brasil SA in Sao Paulo.


Brazil's state development bank, BNDES, is financing the biggest acquisitions in the country as other sources of credit dry up, driving a consolidation in the meat, ethanol, paper and telecom industries and creating "national champions," according to Marcello Hallake, an M&A lawyer in New York who has spent more than a decade advising in Latin America.


BNDES may buy shares of the new company, bank President Luciano Coutinho told reporters today in Rio de Janeiro, without giving more details. Sadia and Perdigao are in preliminary talks with BNDES, Perdigao chairman Secches said.


Juliana Rozenbaum, an analyst at Itau Securities in Sao Paulo, said that though the industry is enthusiastic abou the new company, stakeholders would like to gain more visibility on the structure of the capital increase. "


Sadia, struggling with debt after settling wrong-way currency bets, had jumped 60 percent before today in Sao Paulo trading since March 16, when it said it was in merger talks with Perdigao. Perdigao rose 19 percent over the same period, compared with a 33 percent gain for the benchmark Bovespa index.


Sadia booked more than 3 billion reais of expenses related to derivatives in the second half of 2008 after Brazil's real slumped 31 percent. The poultry exporter, based in Concordia, Brazil, had its first annual net loss since it was founded in 1944 last year because of the wrong-way currency bets.


Sadia was the first Brazilian exporter to announce derivatives losses on Sept. 25, after it fired Chief Financial Officer Adriano Lima Ferreira for allegedly exceeding company limits on currency hedging contracts.


Perdigao's BB+ corporate credit rating, one level below investment grade, may be cut by Standard & Poor's Ratings Services following the merger. Sadia's B grade, five levels below investment quality, may be raised, S&P said.