Brazil’s Latest Merger May Ease Pressure on Perdigao-Sadia Deal

The latest food industry merger in Brazil might take some antitrust pressure off another player created in a merger a few months ago, heavyweight multinational BRF-Brasil Foods SA.

Perdigao acquired Sadia earlier this year to create Brasil Foods, giving it a whopping 75% market share of frozen foods – from lasagna to chicken nuggets. Both name brands are part of a handful of national, household names and are present in Europe, Russia and the Middle East as well.

The Brazilian government’s antitrust division CADE, which must approve the merger, has been reviewing the deal since May. It hasn’t yet decided what divisions or products the newly created Brasil Foods might have to sell. A press spokesman from CADE said Tuesday that no date has been set to rule on the merger.

But now another sizeable deal in the Brazilian food market could help ease the pressure on the Perdigao-Sadia merger.

Brazil’s Marfrig Alimentos SA has announced it will acquire U.S. food major Cargill Inc.’s Brazilian unit, Seara Alimentos Ltd., for $900 million, including $193.8 million in assumed debt. The acquisition gives Marfrig a sizable chicken and pork business in Brazil, increasing its packing capacity to around 2.2 million chickens a day compared with Brasil Foods’ 3.5 million.

“The Marfrig acquisition now gives Perdigao and Sadia a stronger argument against selling off some of its assets,” said Renato Prado, an equity analyst at Banco Fator in Sao Paulo. “They just got a very strong competitor with this Seara merger, so antitrust pressure on Brasil Foods could ease,” he said.

Brazil is the world’s leading chicken and beef exporter. And Sadia and Perdigao are the nation’s leading chicken companies. Marfrig is one of Brazil’s top three beef companies, but has been buying up poultry outfits over the last year. It bought European chicken company OSI Group for around $680 million in November 2008, then acquired chicken company Doux Frangosul for around $32 million in June.

“Marfrig wants to integrate into other meat markets and Brasil Foods is right there in that space. They just got a new rival and antitrust will definitely have to consider that now,” said Caue Pinheiro, an equity analyst at SLW Corretora in Sao Paulo.

Marfrig’s acquisition of Seara marks another leap forward into new market segments. Instead of selling the chicken meat to companies to package and export, Marfrig could package that meat itself into chicken patties, chicken nuggets and other frozen foods, creating a stronger brand name to compete with Brasil Foods on supermarket shelves, said Prado.

“Marfrig will eventually take away market share from Brasil Foods,” said Denise Messer, an analyst at Brascan in Rio de Janeiro.

Nevertheless, Marfrig is still chipping away at a behemoth. The latest acquisition brings Marfrig’s market capitalization to around 7.8 billion Brazilian reals ($4.3 billion), including debt. Brasil Foods’ market cap is around BRL17.3 billion.

“Marfrig has added serious muscle, but it has a long way to go to bring Seara on par with Brasil Foods’ brands,” said Pinheiro.