Brazilian beef producer Marfrig to sell stake to lower debt

Brazilian beef producer Marfrig plans to sell a stake to lower its mounting debt, a move that is expected to attract food companies as well as private equity firms.

The company has appointed Brazilian bank Banco Itaú BBA to hold the bidding process and expects to raise about BRL2bn ($989m) through the sale of its stake in the holding company or some of its divisions.

While the talks are at a preliminary stage, potential bidders could include US food company Tyson Foods, US private equity firm Blackstone, private equity units of American multinational banking company JPMorgan, and Brazilian banking company Banco Bradesco, reported Bloomberg citing sources with direct knowledge of the matter.

Marfrig Alimentos is seeking to lower its debt of BRL8.72bn ($4.29bn), after making about 20 acquisitions over a five-year period in order to compete with its rival BRF – Brasil Foods.

In a major acquisition, the company invested $2bn to acquire Brazilian poultry and pork business Seara from Cargill and Keystone Foods in 2010, which mounted its debt fourfold within two years.

To lower its debt, Marfrig completed the divestment of US and European distribution unit to US distributor Martin-Brower for $400m in February 2012.

Marfrig vice president of institutional affairs Joao Sampaio was recently quoted by Bloomberg as saying that the company plans to divest assets, including its stake in Seara, to lower its debt from the current 4.5 times earnings to 2.5 times.

Marfrig, which is involved in the production of prepared beef, pork, mutton, poultry and food products, reported a net profit of BRL15.5m ($7.04m) in the second quarter of 2012, compared to a net loss of BRL91m ($44.83m) a year earlier, helped by weaker exchange rate and increased availability of cattle in the domestic market.