Alfa’s Sigma Bets on Europe With $908 Million Campofrio Bid

Alfa SAB (ALFAA)’s Sigma Alimentos food unit offered 675 million euros ($908 million) for Madrid-based sausage maker Campofrio Food Group SA (CFG) in a bet on European expansion by Mexico’s largest processed-meats producer.

The 6.80 euro-a-share bid by Sigma is 11 percent higher than Campofrio’s closing price yesterday. The stock rose 12 percent to 6.87 euros on speculation that Shuanghui International Holdings Ltd., a Hong Kong-based shareholder in Campofrio, may demand a higher price or make a counteroffer.

The bid marks Sigma’s first foray into Europe after a decade-long acquisition spree in Latin America and the U.S. Spanish companies are attracting foreign investment as the nation’s economy emerges from a five-year slump, with the Ibex 35 benchmark index gaining 27 percent in the past year.

“It’s the entry into Europe for Sigma and they’d be going in through a very big door,” Carlos Hermosillo, a Grupo Financiero Banorte SAB analyst with a hold rating on Alfa shares, said in a telephone interview from Mexico City. “In terms of acquisitions, there’s not much left for them to do in Mexico and there aren’t many deals of this size to be done in the rest of Latin America.”

The European economy is at a low point and will soon show a “trend to recovery,” Alfa Chief Executive Officer Alvaro Fernandez told reporters on a conference call. The Campofrio deal may close in the first quarter of 2014, he said.

‘Right Time’

“We think now is the right time to go shopping,” he said. “This is an extraordinary opportunity for Sigma to diversify. This will make us a global company, not just a regional one.”

Campofrio makes cured hams, hot dogs and packaged pizzas, and has 25 plants in eight countries including Spain, France, Italy, Germany and the U.S., Fernandez said.

The Spanish company had 1.92 billion euros in sales in the past 12 months while Sigma had $3.72 billion, Alfa said in a statement. At current exchange rates, that implies an almost 70 percent increase in Sigma’s sales.

Campofrio shares with today’s gain in Madrid have climbed 22 percent in the past 12 months. The stock is still about 75 percent below its 1998 peak.

Alfa climbed 0.3 percent to 35.77 pesos at the close in Mexico City. The San Pedro Garza Garcia, Mexico-based company’s shares have risen 37 percent in the past 12 months.

Shuanghui Stake

Sigma has already bought a 44.5 percent stake in Campofrio, Fernandez said. The meat producer is seeking to learn more about Shuanghui’s reaction, he said.

“It will all depend on Shuanghui’s intentions toward Campofrio,” BPI analysts led by Joao Safara wrote in a note to investors. “On a pure financial basis we believe it should reject the offer considering the low price offered.”

The bid values Campofrio at 1.12 billion euros including debt, Alfa said. At 7.6 times the company’s earnings before interest, taxes, depreciation and amortization, or Editda, in the past 12 months, the price is “quite attractive” for Alfa, Banorte’s Hermosillo said.

Shuanghui, China’s biggest pork producer, inherited a 37 percent Campofrio stake when it bought U.S. hog processor Smithfield Foods Inc. in September. Shuanghui said in September it would reduce its holdings in Campofrio to less than the 30 percent threshold that triggers a legal requirement to offer to buy out other shareholders.

Chairman Alliance

Sigma said it’s forming an alliance with Campofrio Chairman Pedro Ballve, who will invest in the company as well. The Mexican company said it has also bought stakes from shareholders including CaixaBank SA. The bidder has submitted the offer to the securities market regulator for approval.

The Mexican company will fund the acquisition through a fully committed five-year term loan of as much as 675 million euros, Alfa Chief Financial Officer Ramon Leal said on the conference call. The company has already used 300 million euros of the loan to buy Campofrio shares.

If Sigma buys all the Spanish company’s shares, its net debt would climb to 3.4 times Ebitda, from 1.8 times as of Sept. 30, Leal said. The unit would seek to reduce that leverage quickly, potentially through an initial public offering next year, he said. Alfa said on Sept. 30 that it was studying an IPO for Sigma.

Alfa also has businesses in petrochemicals, auto parts, telecommunications and oil and gas production. Past acquisitions include a meat producer in El Salvador in 2003, a Peruvian meat processor in 2008 and Phoenix-based Bar-S Foods Co. in 2010.

Sigma’s offer for Campofrio follows the purchase in October of a stake in Spanish builder Fomento de Construcciones & Contratas SA by Microsoft Corp. (MSFT) founder Bill Gates, the world’s richest man. Private-equity company Apollo Global Management LLC has also made acquisitions in Spain.

To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net; Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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