BREAKING: Minerva pays R$ 7.5 billion for Marfrig plants - Minerva Foods | Criando conexões entre pessoas, alimentos e natureza.
BREAKING: Minerva pays R$ 7.5 billion for Marfrig plants

BREAKING: Minerva pays R$ 7.5 billion for Marfrig plants


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BREAKING: Minerva pays R$ 7.5 billion for Marfrig plants

Minerva is buying most of Marfrig’s cattle and sheep slaughtering and deboning operations in South America — a transaction that will increase the company’s revenue by 45% and is expected to generate positive cash flow from the outset.

The company controlled by Fernando Queiroz is paying R$ 7.5 billion – US$1.54 billion – for the set of assets — with R$ 1.5 billion as a down payment and the remainder upon receiving approval from CADE (Administrative Council for Economic Defense, in Brazil). JP Morgan has extended a credit line of R$ 6 billion that will be available for 18 months and will have a 2-year term.

With the transaction, Marfrig is focusing its business even more on processed products — particularly on poultry and pork, given its stake in BRF — but will continue to sell fresh beef under brands such as Bassi Angus.

At the same time, the transaction helps Marcos Molina take a significant step towards his deleveraging in Marfrig.

By consolidating its stake in BRF (and already including the capital increase), Marfrig currently has a net debt of R$ 36 billion, or 3.7x EBITDA. According to the company, once all the funds from the transaction are in the cash reserves, this metric will drop to less than 3x.

The transaction – which intensifies Minerva’s focus on fresh meat – is the most transformational for the company since the acquisition in 2017 of JBS plants in South America, which increased the company’s capacity by 35% and cost $300 million.

Over the years, Molina and Queiroz have had numerous discussions exploring potential strategic combinations or asset sales between the companies – but until now, there had never been an alignment between the two, be it in terms of strategic motivation or valuation.

Minerva – now a company with R$ 29 billion in net revenue and R$ 2.8 billion in EBITDA – adds R$ 18 billion in net revenue and R$ 1.5 billion in EBITDA with the acquisition. In the 19 acquisitions that Minerva has made over the past 14 years, the company has typically extracted synergies that increased its EBITDA margin by 150 to 200 basis points in the first 18 months.

Assuming that the synergy gain with Marfrig’s assets settles at 70 basis points by the end of the first year, Minerva will transform into a company with R$ 52 billion in net revenue and R$ 5.1 billion in EBITDA, with its leverage returning to 2.6x within a year.

The transaction also deepens Minerva’s geographical diversification. After the acquisition closes, Minerva will have 52% of its installed beef capacity in Brazil, 15% in Paraguay, 15% in Argentina, 11% in Uruguay, and 7% in Colombia.

The acquired assets are expected to bring an estimated EBITDA of R$ 1.5 billion. Assuming a maintenance capex of R$ 200 to 300 million per year and a financial expense of R$ 700 to 800 million given the new leverage, the transaction would already bring in a free cash flow of R$ 300 to 400 million – without including any synergies.

Stocche Forbes and White & Case advised Minerva. Marfrig worked with Lefosse Advogados.

Translated from: Brazil Journal.