This agreement prevents a forced breakup of Brasil Foods, the Sáo Paulo-based processed foods company which was formed from the 2009 takeover of Sadia by smaller rival Perdigao. Citing Brasil Foods' dominance in several markets, CADE had threatened to derail the merger. Following CADE’s decision, the company's shares posted their biggest gain in more than two years.
The outcome is seen as a major victory for Brasil Foods, whose brands rule supermarket shelves throughout Brazil. Breaking up the company would have cost much more than unloading some assets and brands.
Disposing of about 3 billion reais (US$1.9 billion) worth of assets and minor brands might cost Brasil Foods about 13 percent of revenue, said Jose Antonio Fay, CEO. Analysts estimate that could be equal to about 8 percent of operational earnings as measured by EBITDA, or earnings before interest, taxes, depreciation and amortization.
Because the restrictions will hardly weigh on the company's pricing power, consumer groups and antitrust lawyers said CADE’s approval of the merger is a blow to corporate governance standards in Brazil – Latin America's largest economy.
Brasil Foods is one of the country's biggest government-engineered mergers and was part of former President Luiz Inacio Lula da Silva's efforts to create "national champions" in sectors he deemed strategic, such as commodities, food processing and telecommunications.
Thomson Reuters data confirms the $5.4 billion combination was the biggest in any emerging market nation in 2009.
Sadia and Perdigao have long been dominant in most of the markets where they operate. Some analysts said the merger was motivated by political considerations that overruled worries about market concentration.
Marfrig Alimentos SA, a leading Brazilian beef processor, has shown interest in the assets Brasil Foods might sell, a source told Reuters. Other candidates include JBS SA, the world's largest beef processor, which has been considering expanding into poultry and pork, and smaller competitor Minerva SA.