July 18, 2006

Brazil's poultry industry consolidates in US$1.7 billion takeover

Sadia SA, the biggest chicken and turkey exporter in Brazil, has made an offer to buy Perdigao SA, the country's second-largest food processor for 3.7 billion reals (US$1.7 billion) to consolidate the nation's poultry industry and fend off foreign takeovers.

With the purchase, Sadia intends to join the ranks of international food giants such as Tyson and Smithfield the world's two largest meat processors.

The acquisition would create the world's fourth biggest meat processor, behind Tyson, Smithfield, and Pilgrim's Pride, according to figures provided by Sadia

Sadia already has the size to compete internationally, Banco Brascan SA analyst Flavio Barcala said, adding that the acquisition would help the company increase its negotiating power and lower distribution costs. 

The combined company would have 26 food-processing plants, 38 distribution centers and 81,000 employees with revenue from overseas operations totaling US$5.5 billion a year, a company statement said. 

However, regulators may require Sadia to sell assets to avoid a monopoly in some areas before approving the transaction, said Barcala. Sadia would need approval for the transaction from the country's anti-trust agency and stock regulators and would likely face challenges because of its dominant position in Brazil's turkey and frozen food markets, Barcala said.

International competiton is tough, Sadia Chairman Walter Fontana Filho said in a statement, but the company is prepared to meet regulators' demands to compete internationally. 

ING Groep NV said in a report last year that Brazil, the world's largest poultry exporter, stands to gain the most from bird flu, which crippled the poultry markets in several countries.

The report said the Brazilian poultry industry have been increasing chicken exports and cranking up capacity to take advantage of reduced supply and import bans from EU countries affected by bird flu.