Brasil Foods Posts Biggest Gain in Five Months on Delay

BRF – Brasil Foods SA, the world’s largest poultry exporter, posted its biggest gain in five months on speculation it will reach an agreement with the Brazilian antitrust regulator to save the deal that created the company.

The Sao Paulo-based food processor rose as much as 1.16 reais, or 4.7 percent, to 25.64 reais, the biggest intraday gain since Jan. 18, and was trading at 24.85 reais at 3:46 p.m. local time. The stock increased after the agency agreed to a request from Brasil Foods to postpone a vote on whether to block the transaction after two of five commissioners voted against it.

Brasil Foods is offering to negotiate an agreement with the agency to save the $3.8 billion takeover about two years after the combination was formed from Perdigao SA’s takeover of rival Sadia SA. Chief Executive Officer Jose Antonio do Prado Fay wants time to discuss possible solutions after commissioner Carlos Ragazzo said the company wields too much market power.

“Cade is giving more time to Brasil Foods,” Fausto Gouveia, who helps manage about 250 million reais ($158 million) at Legan Asset Management, said today in a telephone interview from Sao Paulo. “We still have a bumpy road ahead, but for today the postponement is good news.”

Fay’s request prompted investors to bet Brasil Foods may be able to avoid an outright rejection of the purchase by agreeing to sell assets such as Sadia frozen pizzas or Perdigao sausages, said Flavio Barros, who helps manage about 300 million reais at Sao Paulo-based Grau Gestao de Ativos.

‘Ready to Negotiate’

“We are ready to negotiate,” Wilson Mello, vice president for corporate affairs at Brasil Foods, said today in Brasilia after the Cade postponement was made public. The company “fulfilled everything Cade has requested,” he said.

Brazil’s antitrust agency will convene again June 29, when commissioner Ruiz may present a proposal for an agreement or put the deal to a vote. According to Cade’s rules, Ruiz is allowed to ask for a second delay to the vote and would need Cade’s authorization for a third postponement.

Brasil Foods, formerly Perdigao SA, bought Sadia in 2009 after the bigger rival booked more than 3 billion reais in wrong-way currency bets, following the Lehman Brothers Holding Inc. collapse. The deal was supported by Brazilian pension funds of state-run companies, which collectively owned 22 percent of Perdigao and now hold a 23 percent stake in Brasil Foods.

Forced Divestitures

“A deal that was widely supported by the Brazilian government is unlikely to be outright rejected,” Barros said June 13 in a telephone interview. “They will probably be forced to sell some business.”

The maker of Sadia frozen dinners and meatballs, which has 45 brands and may control 90 percent of some markets, has sufficient market share to increase prices without losing customers, Cade commissioner Carlos Ragazzo said June 8.

The company has a 78 percent market share of Brazil’s frozen pizza sales, 62 percent of margarine and 69 percent of frozen meat, according to its annual report, based on data compiled by market researcher Nielsen Co.