Marfrig Global Foods SA bonds and shares soared after JBS SA agreed to buy its unit in the U.K. for about $1.5 billion to extend its push into processed foods.
Marfrig’s $775 million of benchmark bonds due 2020 advanced 4.14 cents to 102.26 cents on the dollar, pushing yields down to 8.91 percent as of 11:52 a.m. in New York. The shares jumped 9.3 percent to 5.28 reais, a five-month high.
The transaction value includes $1.19 billion in cash and the assumption of 200 million pounds ($317 million) in debt at the unit, Moy Park Holdings Europe Ltd., according to a statement filed on Sunday by Sao Paulo-based Marfrig. The company’s ratio of net debt relative to adjusted earnings -- a measure of the size of its debt load -- rose to 6.3 in the first quarter, the highest in at least seven years.
The sale “is positive for Marfrig as investors are looking for more deleveraging from the company,” John Haugh, a Latin America strategist at Mizuho Financial Group Inc. in New York, said by telephone.
The purchase helps JBS, the world’s largest meat producer, add to its presence in Europe and aids its growth in prepared foods. The company, also based in Sao Paulo, has spent about $7 billion since 2007 on acquisitions overseas including U.S.-based Pilgrim’s Pride Corp. and Swift Co. and is generating record profit as a surging dollar pushes up revenue.
The sale ends a period of wait-and-see for Marfrig, a supplier of meat to McDonald’s Corp. and Burger King Worldwide Inc. The company planned last year to take public Northern Ireland-based Moy Park, with the proceeds from an offering slated to pay down debt.
Marfrig delayed the move last fall amid a surge in equity offerings in London. The company has also considered an IPO of another offshore unit, U.S.-based Keystone Foods Ltd., in order to boost growth and reduce leverage. But the Keystone IPO is no longer needed after the Moy Park sale, according to a conference call today with executives.
Selling Moy Park -- a producer of fresh and processed poultry -- will allow Marfrig to focus on expanding Keystone’s food service business in Asia and the U.S. and emphasizing beef exports from Brazil to those regions, according to the statement.
The deal is subject to approval by the European antitrust authorities, and is expected to close in the third or fourth quarter of this year, according to the filing.
For JBS, Moy Park continues its evolution into a global food empire after starting as a small Brazilian butcher.
Mostly a beef producer until 2009, JBS expanded its poultry operations in the Americas and is now turning to Europe. Global chicken output increased by 22 million tons, or 34 percent, in the past decade, while beef production rose by 3.7 million tons, or 6 percent, according to U.S. Department of Agriculture data compiled by Bloomberg.
“Moy Park’s main business is chicken, so this gives JBS a critical mass in that industry in Europe,” Miguel Mayorga, an analyst at Corporativo GBM SAB, said by telephone from Mexico City. For a company of JBS’s size, “it’s strategically necessary to have a presence in chicken in Europe, and this is how they’re going to achieve it.”
JBS Chief Executive Officer Wesley Batista has been building up cash and reducing debt as a 14 percent drop in the Brazilian real this year swells earnings. More than 80 percent of the company’s sales are in dollars. Recent takeovers, such as Seara Brasil from Marfrig and poultry assets from Tyson Foods Inc. in Brazil and Mexico, have also boosted sales volume.
JBS shares have soared 49 percent this year in Sao Paulo compared with a 7.9 percent gain in Brazil’s benchmark index and a 7.6 percent advance by its biggest global rival Tyson.
“Now we are building muscle,” Batista said in an interview last month. “We were a beef company some years ago, then we became the largest protein company and we see ourselves in the middle, long term, as a global food company.”