July 14, 2011

 

Brasil Foods to merge with Sadia

 

 

In spite of obtaining antitrust consent for a merger with its key rival, Sadia, Brasil Foods, the world's largest poultry exporter, will have to suspend one of its major brands and sell some assets.

 

The ruling was one of the most aggressive by Brazil's antitrust regulator, Cade, but will not alleviate concerns over the country's post-merger approval system in which few deals are blocked and decisions are issued sometimes years after deals have gone through.

 

"The company is pleased that the matter has ended at the administrative level by signing an agreement with CADE, thus, avoiding a future scenario of uncertainty and preserving the essence of the merger," Brasil Foods said.

 

Markets were nervous that Cade might order Brasil Foods to be dismantled after a key director of the regulator last month voiced his opposition to the US$3.8 billion government-backed merger of food processors Perdigão and Sadia that created the frozen foods group in 2009.

 

Brasil Foods directors have been working with Cade to come up with a solution to lessen the combined group's dominance of the fast-food market, resulting in Wednesday's (Jul 13) agreement.

 

The company agreed to suspend the use of Perdigão, one of its main brands, on some products for three to five years as well as its Batavo brand on all meat goods for four years.

 

The deal also involves the disposal of 12 other brands, 10 food-processing plants, eight distribution centres and several pork and chicken slaughterhouses, and requires Brasil Foods to hand over contracts with rural producers in its supply chain.

 

The company's shares jumped by 9.8% after the ruling, to BRL28.55 (US$18.15), the biggest rise in more than two years.

 

But it is not clear whether the settlement is enough to mitigate Brasil Foods' 70-80% combined share of some of its key markets.

 

It comes amid efforts to change Brazil's merger approval system, the only one of its kind alongside those of Pakistan and Egypt.

 

Brazil is considering legislation to change the law to give Cade four months to make a decision and, crucially, forbid companies from merging until they get prior approval.

 

Under the present system, Cade has reviewed 8,000 transactions and blocked only eight of them. Even when it does block deals, these are usually challenged in court, where they can languish for years.