Purchase of BRF by JBS would concentrate the market and tends to be disapproved by Cade, analysts say – 06/11/2021 – Market

After weeks of forays from Marfrig, which gradually bought BRF shares, the new round of acquisitions in the meat sector appears to have attracted the attention of a former heavyweight, JBS, a strategist when it comes to acquisitions. JBS went from a small butcher shop in Goiás to a global giant buying companies.

The information about the interest of JBS circulated in the sector this Friday (11) and gained strength after being reinforced by a note by columnist Lauro Jardim, from O Globo. The market reaction was quick. BRF shares soared 14% at the beginning of trading on B3 with the possible interest of JBS in taking control of BRF.

The initiative would be a counter-attack by the Batista brothers’ company on Marfrig, in an attempt to curb the rival’s advance. Since the end of May, Marfrig has been buying shares in BRF until becoming its main individual shareholder, today with 31.66% of the capital of the owner of the Sadia and Perdigão brands.

The amount puts Marfrig in the limit of 33.33% to trigger the “poison pills” (poison pills) at BRF, which would force it to make an offer to all shareholders to take control of the company.

At the end of the day, however, the shares of BRF accommodated and closed with a high of 3.94%, at R$ 29.05, given the reading that the purchase by JBS is nothing simple.

Specialists heard by the report doubt that the possible interest of JBS on the BRF will prosper, especially because of the obstacles with Cade (Administrative Council for Economic Defense). “JBS owns brands like Seara and Swift, which compete directly with Sadia and Perdigão. It would be a lot of market overlap”, says Sérgio Berruezo, an analyst at Ativa Investimentos.

In recent cases involving large mergers and acquisitions, Cade has shown itself more rigorous than it has been in the past. “The operation between Kroton and Estácio in 2017, for example, was disapproved”, he recalls.

Leonardo Alencar, an analyst at XP Investimentos, agrees. “I find it difficult for this deal to happen,” he says. “It doesn’t have the complementarity of BRF and Marfrig, on the contrary, it only overlaps. The high market share that the new company would have in several categories would make Cade’s approval unfeasible”.

A possible sale of Seara, to meet the regulation, would also make no sense, according to Alencar. “They would pay dearly for BRF to dispose of assets in the sequence”, says the analyst at XP, for whom the news is speculation.

In addition, Berruezo says, JBS would have to make a huge cash outlay, paying a premium on BRF’s market value. Sought, JBS said it does not comment on market speculation. Marfrig also declined to comment.

BRF, on the other hand, informed, through its press office, that it has not received any official information on the subject and does not comment on speculations.

“The company reinforces that it continues to advance in its sustainable growth strategy foreseen in Vision 2030, in which it foresees investments in the order of R$ 55 billion over the next 10 years, to consolidate itself as a global food company with high added value, anchored in innovation, high quality and financial discipline”, he says in a statement.

“BRF has very ambitious growth targets, but it has very high leverage, which makes the market skeptical about its ability to achieve it,” says Berruezo, referring to the company’s indebtedness level, which currently stands at 2 .96 times Ebitda (earnings before interest, taxes, depreciation and amortization).

On the other hand, the two candidates for takeover are much less leveraged: tied at 1.76 times the Ebitda, says Berruezo.

JBS is the largest protein producer in the world and the second largest food company, only behind Nestlé. In addition to Swift and Seara, it has brands such as Friboi and Maturatta in its portfolio. Marfrig is one of the largest protein producers in the world, with a focus on beef, and has 70% of its revenues in North America.

BRF, in turn, is the largest chicken meat exporter in the country, with a portfolio focused on chicken and pork – hence the complementarity with Marfrig’s operations. “It makes much more sense for Marfrig to stay with BRF,” says a source, who was already part of the company’s command group. “For JBS to get a position at BRF that can lead it to be the company’s controller is quite a fight, very difficult”.

Whatever the player, the path is to diversify the portfolio and geographic presence, says Alencar, from XP. The analyst draws attention to the strategy that would be necessary for JBS to significantly enter BRF.

As BRF’s capital is very dispersed, JBS would have to buy shares outstanding in the market (free float) and still negotiate with large funds the formation of a “block trade”, or block order. In this type of operation, the same offer places a large amount of shares on the stock exchange to be sold, all at once.

After Marfrig, which owns 31.66%, the main individual shareholders of BRF are Petros (Petrobras employee pension fund), with a 9.90% stake, bank JP Morgan (7.15%), and Previ (Banco do Brasil employee pension fund), with 6.20%, and Kapitalo Investimentos (5.02%).

“If JBS moves forward on BRF, certainly one of the minority shareholders will trigger Cade”, says Ricardo Schweitzer, founding partner of the investment analysis house Nord Research. In this case, he says, the regulatory body tends to limit access to confidential information or prevent JBS from participating in the BRF board. The same can happen with Marfrig, if it tries to nominate members to compose the board.

“We had a similar example in the past in the steel industry, when CSN became a shareholder in Usiminas”, he recalls. “CSN wanted to appoint advisers to the company, but Cade vetoed it, because the company would have access to strategic data and could influence the competitor’s decision-making.”


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