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Marfrig Becomes McDonald's Main Chicken Supplier

by 5m Editor
17 June 2010, at 11:55a.m.

BRAZIL - Brazilian company Marfrig Alimentos SA, Latin America's second-largest beef producer, agreed to buy meat processor US based Keystone Foods LLC for US$ 1.26 billion to become a supplier to restaurant chains such as McDonald's Corp.

Marfrig, based in São Paulo, Brazil will sell 2.5 billion reais (US$ 1.4 billion) of five-year bonds convertible into stock to finance the acquisition of Keystone from private equity firm Lindsay Goldberg LLC, according to a regulatory filing published this week.

Marfrig, in a separate filing Tuesday said it plans to issue American depository receipts.

The purchase will make Marfrig a supplier of chicken nuggets, hamburgers and other meat products to McDonald's, sandwich-shop chain Subway Restaurants and Campbell Soup Co. in 13 countries including the US, France and Australia.

The Brazilian meatpacker has expanded production through 38 acquisitions in the past three years, including the takeover of Cargill Inc.'s poultry and pork business in Brazil for US$ 705.2 million.

BrazzilMag reports that net sales may almost triple at Marfrig this year to 27.8 billion reais after the acquisition, from 9.6 billion reais in 2009.

The bonds that Marfrig plans to sell in Brazil's domestic market this year will mandatorily be converted into shares after five years. They'll be converted at 21.50 reais per share.

Brazil's state development bank BNDES is seen as the most likely candidate to buy the Marfrig notes, International Financing Review said on Tuesday, citing market sources with knowledge of the deal. The company's board will meet on 30 June to approve the debt issuance. BNDES is seen as the only lender capable of absorbing such an issuance in a private placement, financiers consulted by the publication said.

Keystone, based in West Conshohocken, Pennsylvania, produces more than 1.6 billion pounds of poultry products and 388 million pounds of beef products a year and distributes them to about 30,000 restaurants worldwide, according to its website. It reported net sales of US$ 6.4 billion in 2009. "The joining of these two global companies will benefit our clients and employees globally," Keystone Foods Chief Executive Officer Jerry Dean said in the statement.

Lindsay Goldberg LLC, based in New York, is a private equity firm founded by Alan Goldberg and Robert Lindsay, respectively a former private equity chief and former managing director at Morgan Stanley.

Marfrig is the latest Brazilian food company to expand abroad, tapping growing demand for protein in China and India, the world's most populous countries. Brazilian companies are also stepping up takeovers in the United States, where company valuations remain low after the deepest economic recession since the 1930s.

Brazil's JBS SA, the world's biggest meat processor, bought a 64 per cent stake in bankrupt US chicken producer Pilgrim's Pride Corp for US$ 800 million last year.