Wednesday, August 17

Brazil food processor BRF shares up 5.6% on M&A talk, upgrade

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SAO PAULO — Shares in food processor BRF SA were up more than 5% in morning trading in Sao Paulo, following an analyst upgrade and with markets continuing to speculate about a potential acquisition of the company by Marfrig Global Foods SA.

In a note to clients, analyst Leandro Fontanesi at Bradesco BBI upgraded BRF to “outperform,” citing the potential takeover and significant cost reductions by the company.

A BRF filing with the SEC on Oct. 25 regarding the sale of the 3.8% stake owned by retail tycoon Abilio Diniz to Marfrig rekindled speculation of a potential acquisition. Common shares in the company were up 5.6% at 22.54 reais in late morning trading.

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Marfrig has now acquired a total of 33.2% in BRF via stock exchange purchases or in agreements with other shareholders such as Diniz’s family office Peninsula. Its stake is 0.1 percent below the level which would mandate a tender offer to all shareholders under existing “poison pill “Provisions.

Since building its stake, Marfrig and its controlling shareholder Marcos Molina have been telling analysts and investors the company does not intend to acquire BRF or change its management. The company says its investment is “passive.”

An earn-out clause in the contract between Diniz and Marfrig includes the possibility of an outright acquisition, according to analysts at Bradesco BBI.

The contract disclosed to the SEC considers an earn-out by April, when BRF has next year’s ordinary shareholders meeting.

Diniz would receive 50% of any potential rise in the shares by April above the 28.75 reais price he received for his shares.

Asked by Reuters on Thursday, the company did not immediately reply to requests for comment about the market speculation or the contract with Diniz.

One source close to Marfrig told Reuters the recent investment in BRF was analyzed by antitrust watchdog CADE, which had not signaled any restriction on a potential acquisition. CADE did not immediately answer a request for comment on the matter. (Reporting by Paula Laier and Tatiana Bautzer; Editing by David Holmes)