Bloomberg News

Brasil Foods Sinks Amid Brazil Antitrust Comments on Merger

June 08, 2011

(Updates with analyst comment in third paragraph.)

June 8 (Bloomberg) -- BRF - Brasil Foods SA, the world’s largest poultry exporter, dropped to the lowest in six months and is leading losses in the benchmark Bovespa Index amid concerns Brazil’s antitrust regulator may reject the planned $3.81 billion acquisition of Sadia SA.

Brasil Foods fell 1.70 reais, or 6.1 percent, to 26.20 reais at 4:37 p.m. in Sao Paulo trading, the lowest since Dec. 16, after earlier dropping as much as 7.7 percent.

“Approval without restrictions is off the table, we may expect an approval with restrictions or even a rejection,” Caue Pinheiro, an analyst with SLW Corretora, said today in a phone interview from Sao Paulo. “The regulator is emphasizing the fact that the company increased prices after the merger and didn’t bring benefits to consumers.” He rates it a “sell.”

Brazil’s antitrust agency, known as Cade, will vote as soon as today on the purchase of Sadia by Sao Paulo-based Brasil Foods, formerly known as Perdigao SA. Rivals of Brasil Foods don’t have enough spare capacity to compete with the expanded company, and the merger may hurt consumers if approved, antitrust regulator Carlos Ragazzo said today in Brasilia.

“The merger has the potential to damage the market,” Ragazzo, who is in charge of the case at Cade, said during today’s voting session.

Competition Concerns

Brasil Foods’ assets could hurt competition, Ragazzo said. The company, which may control 90 percent of some markets, has sufficient market share to increase prices without losing consumers, he said.

In a May 10 report, the antitrust agency said Brasil Foods must allow competition by a third company and may also have to share gains with customers.

The transaction that created Brasil Foods in July 2009 is the second-largest among 166 industry deals totaling $24.2 billion worldwide since that year, according to data compiled by Bloomberg. Brazilian beef producer JBS SA’s September 2009 buy of Bertin SA is the largest at $6.31 billion, the data show.

--With assistance from Heather Walsh in Bogota. Editors: Robin Saponar, Dale Crofts.

To contact the reporter on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net.

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net.


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