Marfrig Alimentos SA, Latin America’s second-largest beef producer, agreed to sell its U.S. and European distribution unit for $400 million to boost its cash position.
Marfrig, based in Sao Paulo, agreed to sell the unit, a distribution center for McDonald’s Corp. in the U.S., Europe, Asia and Oceania, to Rosemont, Illinois-based Martin-Brower Co., it said in an e-mailed statement yesterday. The sale should be concluded in the fourth quarter, Marfrig said.
“We remain cautious on the use of the proceeds, which may raise concern of a possible acquisition of Brasil Foods assets in Brazil,” analysts led by Alan Alanis, with JPMorgan Chase & Co., said in a research note today. Alanis rates the stock “neutral.”
BRF - Brasil Foods SA, the world’s largest poultry exporter, agreed in July to sell some assets to gain approval from a Brazilian regulator for the $3.8 billion takeover of Sadia SA.
Marfrig fell 17 centavos, or 2.2 percent, to 7.70 reais in Sao Paulo, the lowest since Aug. 31. Brazil’s benchmark Bovespa stock index fell 0.2 percent.
“Proceeds could be used to cut debt,” Marfrig Chief Executive Officer Marcos Molina said in a telephone interview yesterday. The funds “will be used to reinforce our cash position.”
Marfrig doesn’t plan to use proceeds of the distribution unit sale for acquisitions, which are not a focus this year or next, according to Molina.
The shares have plunged 50 percent this year, leading losses of the Bovespa stock index, which had an 18 percent drop, after Sao Paulo-based GWI Asset Management cut its stake, Molina has said.
GWI held 5.22 percent of Marfrig’s common stock and temporarily closed some funds because of “successive portfolio losses stemming from the recent volatility in global markets, exposure to the derivatives market and significant concentration in the assets of a few issuers,” Bank of New York Mellon Corp., the administrator of the funds, said Aug. 11.
Yields on Marfrig’s debt due 2020 have soared 559 basis points, or 5.59 percentage points, in the past two months to
14.70 percent, according to data compiled by Bloomberg.
Marfrig decided to sell the unit, which owns 29 distribution centers, because it is focused on logistics, while Marfrig is focused on the meat business, Molina said.
“Since we took over Keystone, we knew we would eventually sell it,” he said yesterday from Sao Paulo.
The company, which Molina founded, made 38 acquisitions in the past four years, including the takeover of Cargill Inc.’s poultry and pork business in Brazil for $705.2 million.
Marfrig reported on Aug. 15 a second-quarter loss of 91 million reais, its worst earnings in at least four years, from a restated profit of 103.8 million reais a year earlier, amid surging feed costs.
Four of Marfrig’s 29 beef plants are closed because of a lack of livestock, it said Aug. 15. The plants account for about 4,000 head of cattle a day, or about 13 percent of capacity.
“The availability of cattle is improving,” Molina said. “But we think the moment of reopening those plants has not come yet.”
The sale to Martin-Brower shouldn’t affect bond covenants, including the 2.5 billion reais ($1.44 billion) of five-year bonds convertible into stock it sold to Brazil’s development bank to finance the acquisition of Keystone, Molina said.
JBS is the world’s largest beef producer.
Martin-Brower is part of Reyes Holdings LLC, a beer and food distribution company co-founded by billionaire J. Christopher Reyes.