Marfrig Alimentos SA, the world’s fourth-biggest meatpacker, agreed to buy Cargill Inc.’s Brazilian poultry and pork business for $706.2 million in cash, a month after talks to merge with a rival failed.
The accord includes the assumption of $193.8 million in debt from Cargill’s Seara Alimentos SA, Brazil’s second-biggest poultry processor, Sao Paulo-based Marfrig said late yesterday in a statement. The company said it may sell new shares to finance the acquisition.
Marfrig, vying with JBS SA for a bigger share of Brazil’s beef market, said the acquisition will add $1.7 billion in annual sales of pork and poultry. The meatpacker, which has sought to diversify its revenue sources through acquisition in past years, will turn into the country’s biggest poultry processor after BRF Brasil Foods SA.
“The acquisition is positive for the company,” Denise Messer, an equity analyst at Rio de Janeiro-based brokerage Brascan Corretora, said in a report today. “The company is beefing up to compete and win market share from Brasil Foods.”
Marfrig rose 2.7 percent to 17.87 reais in Sao Paulo trading at 12:59 p.m. New York time. The shares have more than doubled this year, more than twice the 57 percent gain for Brazil’s benchmark Bovespa index.
Cargill, which distributes and processes grains and other farm commodities globally, has cut spending and debt as the recession reduces demand for food and livestock feed, pushing down prices for corn, soybean and wheat. Minneapolis, Minnesota- based Cargill, the largest U.S. agricultural company, paid about $130 million for Seara in 2004.
In the past three months, Marfrig announced 244 million reais ($135 million) in investments and acquisitions to boost poultry, pork and turkey processing capacity. Talks to merge with Bertin SA to create Brazil’s largest beef processor ended without an agreement last month.
Brazilian beef producers have government support and competitive advantages such as “abundant” land and lower production costs to rebound from the global economic slowdown, Soummo Mukherjee, an analyst at Moody’s Investors Service, wrote in an Aug. 12 report.
Brazil’s National Monetary Council approved 10 billion reais of loans in April to help meatpackers and other food companies.
Marfrig has beef-processing plants in Brazil, Argentina, Uruguay and Chile. It also processes poultry, swine and other foods. The company reported Aug. 11 that second-quarter profit rose to 405 million reais, from 66.4 million reais a year earlier.