(Updates with closing share price in second paragraph.)
July 13 (Bloomberg) -- BRF - Brasil Foods SA, Brazil’s biggest maker of TV dinners and frozen meat products, surged the most in more than two years in Sao Paulo trading after it won conditional approval for its $3.8 billion takeover of Sadia SA.
The stock rose 10 percent to close at 28.55 reais in Sao Paulo, the biggest gain since May 12, 2009. Trading was halted for most of the day in Sao Paulo and New York for the ruling.
The acquisition was approved in a 4-1 vote by Brazil’s antitrust regulator, known as Cade, in a meeting in Brasilia today. Cade ordered it to stop using its Perdigao brand, valued at $1.96 billion by BrandAnalytics and WPP Plc, and sell some assets to ensure domestic competition.
“The decision was good for the company, and shares are reacting to that,” Caue Pinheiro, an analyst at SLW Corretora in Sao Paulo, said in a phone interview. “There will be synergies, even with the restrictions Cade imposed.”
Chief Executive Officer Jose Antonio Fay and other executives have been working to negotiate a deal with regulators in recent weeks after a commissioner said June 8 Cade should block and undo the 1 1/2-year-old takeover. The combined company will have too much market share and may hurt consumers, Carlos Ragazzo, a member of the antitrust regulator, said at the time, causing the stock to tumble 6.8 percent. Ragazzo was the only commissioner to vote against the deal in today’s session.
As part of the accord, Brasil Foods will suspend the use of Perdigao, one of its top brands, for some products for three to five years as well as the Batavo brand on all meat products for four years. The deal also includes selling 10 food-processing plants, 12 other brands, eight distribution centers, and four pork and chicken slaughterhouses, Cade Commissioner Ricardo Ruiz said today at the meeting in Brasilia.
The suspension and divestitures will impact 13 percent of the company’s operating revenue and 12 percent of its sales volumes, Brasil Foods said in a regulatory filing after the ruling.
Yields on Brasil Foods bonds due 2020 tumbled 37 basis points, or 0.37 percentage point, to 5.65 percent at 2:25 p.m. New York time, the most since May 2010, according to data compiled by Bloomberg. Notes due 2017 fell 13 basis points to 5.61 percent.
“Despite having them sell assets, they are keeping the top” Sadia brand, Fausto Gouveia, who helps manage about 250 million reais ($160 million) at Legan Asset Management and doesn’t own the company’s shares, said today in a phone interview from Sao Paulo. “It is the lesser evil.”
Perdigao is Brazil’s ninth most-valuable brand held by a publicly traded company, ahead of iron-ore miner Vale SA, according to a joint study made by Sao Paulo-based research firm BrandAnalytics and Dublin-based WPP Plc, the world’s largest advertising company. Perdigao is valued at $1.96 billion and the bigger Sadia brand is valued at $1.97 billion, the report found.
“Sadia is Perdigao’s only competitor and vice versa,” Ragazzo said while casting the sole vote against the transaction. “The suspension of the Perdigao brand may or may not give the intended results.”
Brasil Foods, formerly known as Perdigao, currently controls 69 percent of the market for processed frozen meat in Brazil, which includes TV dinners, hamburgers and meatballs, according to its 2010 annual report. The meatpacker was created after Perdigao SA purchased Sadia in a $3.8 billion deal supported by state-company pension funds and Brazil’s development bank, after the bigger rival booked more than 3 billion reais in wrong-way currency bets.
The company has 41 distribution centers and 60 plants in Brazil, one in Argentina and two in Europe. The maker of Batavo yogurts and Miss Daisy frozen desserts reported sales of 22.7 billion reais last year.
Brasil Foods is controlled by Previ and Petros, the pension funds for employees of Banco do Brasil SA and state-run oil producer Petroleo Brasileiro SA. Brazil’s development bank, known as BNDES, also has a stake.
--With assistance from Arnaldo Galvao in Brasilia, Boris Korby in New York and Francisco Marcelino in Sao Paulo. Editors: Jessica Brice, Richard Richtmyer.
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