J&F Participacoes SA, owner of the world’s biggest beef producer, faces opposition from Brazil’s state development bank to its plan to buy energy distributor Rede Energia SA (REDE4), said two people familiar with the discussions.
The state bank, known as BNDES, opposes J&F’s expansion into industries not related to the Sao Paulo-based company’s main businesses, said one of the people, who asked not to be identified because the matter isn’t public. In a private meeting, BNDES officials told a controlling J&F shareholder that the purchase should be avoided, the person said.
BNDES owns 31 percent of J&F’s food unit, JBS SA (JBSS3), and has the right to block acquisitions by the subsidiary under a shareholder agreement. BNDES has provided more than 7.3 billion reais ($3.5 billion) in capital and loans to J&F units since June 2007, according to the development bank’s website. The company’s businesses include beef processing, toilet and hygiene products, and pulp and paper operations.
J&F has been considering a purchase of Sao Paulo-based Rede Energia and hasn’t entered into formal negotiations, said Miguel Bueno, a spokesman for J&F. He denied that BNDES is opposing any deal. “J&F is an independent company,” Bueno said in a phone interview from Sao Paulo.
Rede Energia and BNDES officials declined to comment and asked not to be named to comply with company policies.
Rede Energia, a holding company that controls power distributors, has sought a new owner for more than a year. In February, its Centrais Eletricas do Para SA subsidiary filed for bankruptcy protection and defaulted on dollar bonds.
Rede Energia’s credit rating was cut to restricted default by Fitch Ratings on June 13 after the utility extended interest payments and reserved the right to repay debt with equity from its units in a restructuring of local bonds.
In June 2006, BNDES Participacoes SA, the investment arm of the state development bank, made a capital injection of 1.46 billion reais in JBS, the world’s biggest beef producer.
In 2009, JBS sold 3.48 billion reais in convertible bonds to BNDES to fund the acquisition of Greeley, Colorado-based Pilgrim’s Pride Corp. (PPC:US) and Bertin SA. BNDES almost doubled its JBS stake last year by converting the debt into stock.
JBS is the biggest unit of J&F, founded by the Batista family in 1994, and has grown to include units in health, farming, education, reforestation, and banking.
BNDES approved 2.7 billion reais in financing for Eldorado Celulose e Papel, also a J&F unit, to be used to build the world’s largest pulp factory, according to an e-mailed statement last June.
An investment fund of FGTS, Brazil’s workers’ compensation fund, and BNDES Participacoes SA are also shareholders in Rede Energia, which distributes electricity in seven Brazilian states.
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