Brazil’s Beef Giant Minerva Set to Acquire Marfrig Assets for $1.5 Billion

Bloomberg — Brazil’s Minerva SA agreed to buy some assets from rival Marfrig Global Foods SA for $1.5 billion, a “pricey” deal that will create a South American beef giant. Minerva shares slumped.

The agreement to acquire 16 plants in Brazil, Argentina, Uruguay and Chile will boost Minerva’s cattle slaughtering capacity by 44% and expand its market share in the export market, the company said in a statement on Monday. While the deal could be “transformational,” Morgan Stanley analysts labeled the acquisition as “pricey.”

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The deal comes at a time when Minerva is outperforming its larger and more diversified rivals Marfrig and JBS SA, which have been hit by a number of setbacks including high grain prices and a glut of chicken and pork. Still, shares slumped as much as 16%, its biggest loss since pandemic lockdowns curbed demand in March 2020.

“In the long run, it may end up positioning Minerva as a major leading South American force in the global trade of beef,” said Morgan Stanley analysts Ricardo Alves and Lucas Mussi. “However, at least for now, given valuation, capital discipline/leverage concerns, lower carry, we think investors may be willing to ask longer-term questions later.”

Minerva has already paid 1.5 billion reais for the acquisition, and JPMorgan Chase & Co. has committed to a bridge loan for the rest of the transaction, the Sao Paulo-based company said. In a presentation on Tuesday, the company added the acquisitions will expand its share of beef shipments in South America to as much as 35% from 20% now.

Increased scale will improve access to cattle and boost Minerva’s power in global meat trading, Chief Executive Officer Fernando Galletti de Queiroz said in a call with analysts on Tuesday.

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Top shareholders — the family holding VDQ Holdings SA and the Saudi Agricultural and Livestock Investment Co. — have committed to approving the deal, which is expected to be completed within a year, Minerva said.

The acquisition, which includes 15 beef plants and one lamb, will also boost sales by nearly 80% to about 52 billion reais by 2024, and will immediately generate cash, Chief Financial Officer Edison Ticle said in the investor call. The deal will be fully funded by debt, fueling investor skepticism.

For seller Marfrig, offloading the plants was a way to speed up founder Marcos Molina’s strategy to focus on more value-added products and processes foods. Shares surged more than 15% in Sao Paulo, the biggest gain in more than three years.

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The transaction “came in at an attractive valuation for Marfrig” and should help in its deleveraging process, Bradesco BBI analyst Leandro Fontanesi wrote in a note.

The deal will reduce the number of Marfrig’s cattle slaughtering plants in South America to four, with revenues in the region set to decline by 43% to 15.8 billion reais, according to a company presentation. Marfrig also expects to see higher margins as more of its sales will be tied to value-added products.

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