Yet another super-merger that benefited only one: Furlan.
CADE orders Brasil Foods to divest 80% of its products under the Perdigão brand; the splitting up of the company benefits Sadia, owned by the family of Luiz Fernando Furlan, which was bankrupt.
247 - The decision by the Administrative Council for Economic Defense (Cade) regarding the Sadia-Perdigão merger raises doubts about the validity of such a difficult and costly operation as that of Brasil Foods (BRF). Two years of lengthy discussions led to an outcome that benefits few. With severe restrictions imposed by the competition watchdog this Wednesday, the 13th, such as the suspension of the sale of Perdigão products in the country, the obligation to negotiate with competitors for six brands and their respective production plants, and the limitation on the use of Batavo, the pursuit of creating Brazilian giants in different sectors has been called into question. Since the formation of Ambev, with the union of the market leaders in beverages Brahma and Antarctica, a pattern has been established that bigger is always better. With the financial support of the National Bank for Economic and Social Development (BNDES), a large company in trouble could be saved. This was the case in the telecommunications sector with the union of Brasil Telecom and Oi, and in the pulp and paper sector with Votorantim and Aracruz. But the result is not always what is expected.
The sole purpose of BRF's operation was to save Luiz Fernando Furlan's family from failure. With a billion-dollar loss in the derivatives market (financial instruments with future maturity) in 2008, Sadia was practically bankrupt and in need of help. Although its revenue that year was R$ 10,7 billion, the R$ 2,5 billion loss from that venture indicated only one way out: a merger with Perdigão, its main competitor, to form another national giant, this time in the food sector. In 2009, with the blessing of President Lula and, initially, R$ 400 million from BNDES, Sadia and Perdigão became BRF, Brasil Foods, to the delight of the main shareholders of both groups, Furlan and Nildemar Secches.
Perdigão, owned by Secches, which was persuaded to close the deal, had its debt under control until that moment. In the formation of BRF, it assumed liabilities of R$ 6 billion, with more than two-thirds of this economic problem stemming from Sadia's businesses. If the company had strictly followed the laws of supply and demand, it could have acquired its competitor at no cost. The benefit went to Luiz Fernando Furlan, the most interested party in not seeing his assets destroyed. In the BRF structure, Furlan received 32% of the new company's capital and also retained the benefit of selling the Concórdia bank and brokerage firm, which were part of his group. Perdigão's shareholders retained 68%.
The bailout of Sadia by Furlan, who was Minister of Development from 2002 to 2007, also helped preserve the assets of the country's main pension funds, such as Previ (for Banco do Brasil employees), Petros (for Petrobras employees), and Valia (for Vale employees). If the company had gone bankrupt, these funds would have had to bear the losses. To avoid this problem, BNDES helped with the corporate reorganization, which required a new public offering of BRF shares worth R$ 4 billion. The public bank bought R$ 750 million worth of shares and helped these funds maintain their significant stakes. Currently, Previ, with 12,7%, and Petros, with 10%, are the largest individual shareholders of BRF.
Following the decision by CADE (Brazil's antitrust authority), the giant BRF has shrunk. It will be necessary to cut 80% of Perdigão's production capacity for the national market. The brand will be removed from Brazilian supermarket shelves for specific periods, depending on the sales performance 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 of pork, tenderloin, sausage, paio sausage, and pork leg will be removed. Salami will be suspended for four years. For five years, ready-made meals (pasta in general, such as lasagna and pizza), meatballs, and cold cuts will be removed. Sausages and turkey will have to be sold to a competitor. And CADE prohibited BRF from creating new brands for the markets from which it was removed.
Furthermore, it will be necessary to sell 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 these businesses can be reacquired within a 10-year period. With so many rejections to the super-merger, only one smile will remain intact.