Tuesday, May 19, 2009

A New Giant, Brazil Foods is Born: Sadia and Perdigao Merge

These two companies have been discussed many times on this blog. Old historical rivals, Sadia and Perdigao, which trade on the NYSE as PDA and SDA, have announced a merger, creating a new world food giant, Brasil Foods. With US $ 22 billion revenue, the new business will be the 10th largest in the Americas. The two brands will be maintained.

Brazil Foods will be the largest industrialized food producer in Brazil, and the 10th largest in the Americas. They will be the world's number one in the processing of chicken meat. Popular and respected by consumers, the brands will be maintained as Sadia and Perdigao.

The transaction is being treated as a merger through an exchange of shares. The shareholders of Perdigao will get 68% of Brazil's Foods and Sadia's will get 32%. The two major shareholders of Sadia and Perdigão will remain predominantly in the new company. They are Previ, the pension fund of employees of Bank do Brasil, and the Fontana and Furlan families. The Board will have two chairmen, one from each side: Nildemar Secchi, of Perdigão, and Luiz Fernando Furlan, from Sadia.

In a second step, the deal provides for a public issue of shares, with the objective of raising around like $ 4 billion. The funds will be used to capitalize the company and try to compensate for the finances of Sadia, which enters the Brazilian Foods carrying a loss of $ 2.6 billion in derivatives exchange.

The transaction gives rise to a structure which employs about 100,000 employees, sells its products in more than one hundred countries and earned U.S. $ 22 billion last year. Within Brazil, the new company dominates over 50% of the market in various segments such as frozen meat, pasta and margarine.

The greatest transformation, however, should occur on the international scene. The expectations of analysts is that from now on Brazil Foods will focus abroad. One will sell the products of the other. The plan is to take the good image that Sadia built abroad. Today, its logo can be easily sighted in billboards on the streets of Baghdad or Moscow. One of the first steps, according to the shareholders of the new company will be to reassess two steps taken by Sadia due to the crisis: the sale of the Sadia factory in Kaliningrad, Russia, and the shelving of a new plant construction in the UAE .

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