Brasil Foods: the giant that shrank
CADE approves merger between Sadia and Perdigão, with many restrictions; the company will have to divest 80% of Perdigão's brands to remain in the market; six brands need to be sold, along with 10 factories and eight distribution centers.
The merger of Sadia and Perdigão into Brasil Foods (BRF) was approved by the Administrative Council for Economic Defense (Cade) this Wednesday, the 13th. However, the giant has shrunk. A lot! To accept the formation of the largest company in the food sector in the country and one of the largest in the world, Cade demanded an 80% cut in Perdigão's production capacity for the national market. The brand will be removed from supermarket shelves in Brazil for specific periods, depending on the sales strength of the products. According to Cade's assessment, BRF had a monopoly in some segments. For three years, frozen pork loin, ham, cooked ham, shoulder, tenderloin, sausage, paio sausage, and pork leg. Salami will be suspended for four years. For five years, ready-made dishes (pasta in general, such as lasagna and pizza), meatballs, and cold cuts. Sausages and turkey will have to be sold to a competitor. And CADE (Brazil's antitrust agency) prohibited BRF from creating new brands in the markets from which it was removed.
But the demands don't stop there. CADE (Brazil's antitrust agency) conducted a meticulous review and demands the sale of the entire production chain and the brands Rezende, Wilson, Confiança, Delicata, Doriana, and Escolha Saudável. The goal is for the buyer to immediately enter the market to compete with BRF. The Batavo brand, one of the group's most important, will have its operations restricted to dairy products only. According to calculations made so far, to merge, Sadia and Perdigão will need to divest 10 factories, four slaughterhouses, 12 farms, four feed mills, and eight distribution centers. None of the businesses can be reacquired within a 10-year period. All jobs must be maintained for six months.
After rapporteur Carlos Ragazzo voted against the merger, the four board members concluded the judgment by approving the creation of BRF under these conditions. The company will have to sign a Performance Commitment Agreement (TCD) in which it commits to following everything determined by CADE (Brazil's antitrust authority). If BRF fails to comply with any item of the TCD, it will have to pay a daily fine of R$ 50. "Suspending the Perdigão brand within these timeframes and in these markets was the only credible possibility for a negotiated solution. In this way, the Sadia brand will be more vulnerable and we reduce the barrier for a new entrant," explained board member Ricardo Ruiz when reading his vote in favor of the merger.
Until the final decision by CADE (Brazil's antitrust authority), trading in BRFS3 shares was suspended on the BM&FBovespa stock exchange to avoid speculation. On Tuesday, the increase had been significant: 3,3%. In the mid-afternoon, with the agreement announced, the shares returned to trading and soared. The appreciation continued until closing the day with a gain of 10,5%. According to analysts' calculations, the immediate financial impact will be a 13% reduction in revenue.