Marfrig Buys Chicken Nugget-Maker Keystone for $1.26 Billion to Expand

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

Marfrig, based in Sao Paulo, will sell 2.5 billion reais ($1.4 billion) of five-year bonds convertible into stock to finance the acquisition of Keystone from private equity firm Lindsay Goldberg LCC, according to a regulatory filing published late yesterday. Marfrig, in a separate filing today, also said it plans to issue American depositary 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 U.S., France and Australia. The 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 $705.2 million.

“The acquisition is part of a broader protein and geographical diversification project being implemented by Marfrig,” Fabio Monteiro and Thiago Duarte, two Banco BTG Pactual SA based in Sao Paulo, said in a report today.

Net sales may almost triple at Marfrig this year to 27.8 billion reais after the acquisition, from 9.6 billion reais in 2009, Monteiro said.

Marfrig fell 3.3 percent to 16.30 reais in Sao Paulo trading at 12:00 p.m. New York time. Earlier, it dropped to 16.29 reais, the lowest since May 28. Before today, the shares have fallen 12 percent this year.

Bond Sale

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.

The sale of convertible bonds will likely lure demand from current shareholders, said Bevan Rosenbloom, an emerging-market debt strategist with RBS Securities Inc. in Stamford, Connecticut.

Yields on Marfrig bonds due in 2016 fell 5 basis points to 9.96 percent at 11:10 a.m. New York time, Bloomberg data show.

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 $6.4 billion in 2009.

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.

JBS SA, based in Sao Paulo, is the world’s biggest beef producer.

To contact the reporters on this story: Helder Marinho at hmarinho@bloomberg.net; Lucia Kassai in Sao Paulo at lkassai@bloomberg.net.

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