Merger would create business similar to JBS

Although the announcement of the talks about the merger between BRF and Marfrig has caused a surprise in the market, one of the possible explanations for the agreement would be the possibility of creating a new global meat platform. With the strength of BRF in chickens and pigs, mainly in Brazil, and the size of Marfrig in the USA, where there are more than 50% of their sales, the union would create a more similar business, albeit much smaller, to the operations of JBS and Tyson Foods. Last year, JBS ended with revenues of R $181 billion, and Tyson in about R $160 billion. BRF and Marfrig would have combined net revenues of R $76 billion in 2018. "I do not think the business brings relevant synergies, in addition to administrative and operational gains in practice," said Itaú BBA's beverage and agribusiness analyst, Antônio Barreto. "In this way, other explanations are left, such as the BRF's attempt to reduce its leverage faster and the creation of a global competitor more similar to JBS and Tyson Foods." Barreto said, however, that it is still debatable if this would be the best alternative for the owner of the brands Sadia and Perdigão. From one year to the next, BRF initiated an aggressive asset sales process – raised R $4.1 billion and sought partners for the chicken distributors. From the point of view of reducing the indebtedness of BRF, there were other alternatives at the table, according to Barreto. The market already expected that, with the swine flu in China, the BRF results would improve sensitively over 2020 and 2021. So much so that it has already begun to appear in the company's actions, which rose about 40% in the last three months. According to the first quarter balances of the two companies, the leverage (relationship between debt and cash generation) of the BRF was 5.64 times, while the Marfrig was 2.76 times. Marfrig has also undertaken considerable effort to reduce its debt. Last year, he sold Keystone, the largest industrialized meat producer, for US $2.5 billion, to Tyson Foods, and joined the American National Beef to strengthen itself in beef. Because of the crisis that has been facing since the end of 2016, BRF has become the target of investment funds. The American Tyson Foods was appointed as a possible interested in acquiring control of the owner of Sadia and Perdigão, according to sources. Strategic Union According to the partner-director of the consulting firm Duff & Phelps in Brazil, Alexandre Pierantoni, the mergers and acquisitions market remains well active in the country, despite the weak growth of the economy. The union between BRF and Marfrig will unite two strategic groups and that have a great part of their revenues in dollars and ensures that the control of the company stays in Brazilian hands. "In the first five months, mergers and acquisitions continue at the same level as 700 to 800 operations a year," Pierantoni said. "Investors, nationals and foreigners, who think in the long term and are more resilient to the crisis, and, taking into account the moment of the country, seek the best applications."