The largest food manufacturers in Brazil and the UK can look ahead with more certainty than they could a week ago, Dean Best writes, but doubts still hang over the future of Latin American country’s biggest retailer.
As one of the BRIC markets, Brazil – and the food manufacturers and retailers within the country – is demanding more and more attention from the industry’s multinational operators. And, in the last week, Brazil has been centre-stage as the futures of the country’s largest food maker and retailer have been in the spotlight.
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The spat over the ownership of CBD, the Brazilian retailer also known by its trading name of Grupo Pao de Acucar, has created business headlines around the world in the last two months. French retail rivals Carrefour and Casino, faced with a stagnant domestic market, have become embroiled in a dispute over a business that both have seen as an important plank in their quest to generate future growth.
A proposal – drawn up by Abilio Diniz, the Brazilian tycoon that co-owns CBD with Casino – to merge the retailer with Carrefour’s assets caused a bitter dispute and one that went beyond the boardrooms of the two French companies. The plan included funding from Brazil’s state-owned national development bank (BNDES) and, initially, the proposed transaction had the support of the Brazilian government.
However, with Casino fiercely against the merger, and with local opposition to the plan from some local politicians and parts of the media, the Brazilian government backed away from the deal and BNDES said last week it would not help fund the transaction. There had been reports that Diniz had been looking for alternative sources of investment but the move from the BNDES led the tycoon to say the plan could no longer proceed.
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Casino, which claims a 2005 deal with Diniz means it can become the sole controlling shareholder in CBD next year, seems to have succeeded in thwarting what it dubbed an “illegal” and “hostile” transaction. However, Casino’s partnership with Diniz has turned sour. Over a decade after the two CBD shareholders first joined forces, Diniz has made it clear his interests lie elsewhere. This story could run and run.
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By GlobalDataThe future for Brazil’s largest food manufacturer, however, seems more certain. On Thursday, Brasil Foods finally secured approval from the country’s competition regulators for the 2009 merger that created the company. The combination of two Brazilian food makers Perdigao and Sadia – a deal, incidentally supported by the BNDES – on paper formed the world’s largest poultry producer and a company that would have the ability to expand overseas. “We will be a very powerful export house, exporting to more than 110 countries,” then Perdigao CEO Nildemar Secches said at the time.
It has, however, taken Brazil’s competition watchdog two years to rule on the deal and, last week, it cleared the transaction, although it has placed some restrictions on Brasil Foods’ use of the Perdigao brand and ordered the company to sell of some other brands and production assets.
Nevertheless, there had been uncertainty over whether the regulator would clear the deal and its verdict sent shares in Brasil Foods soaring. JP Morgan analyst Alan Alanis said the ruling was “a happy ending” after the two-year wait. “Brasil Foods can now move on and complete the integration of its export business, and in our view, with very minor restrictions to integrate its domestic business as well,” he said.
While Brazil’s largest food manufacturer can now apparently move on, the UK’s largest supplier can also now start to look to the future. Last week, Premier Foods named Kraft Foods executive Mike Clarke as its new CEO. Clarke will join Premier in September and investors hope he will be able to revitalise a business that has had its fair share of problems in recent years.
The ups and downs of Robert Schofield’s tenure in charge of Premier have been well documented and Clarke, on paper, seems a high-calibre replacement. Nevertheless, the 47-year-old joins a business that owns brands in some of the UK food sector’s more stagnant categories and a review of the company’s portfolio seems certain. Following Premier’s recent moves to sell its meat-free business and its canned food operations (the company is still waiting for full regulatory approval for the latter deal), more disposals could soon be in the offing.
Own-label business Brookes Avana is often cited by analysts as a Premier asset that could be sold and industry watchers had remarked that Greencore could be a potential suitor. However, the prospects of Greencore moving in for that business look remote after the Irish company last week tabled a takeover bid for another UK private-label supplier, Uniq.
Greencore has already secured the support of Uniq’s pension trustees, which owned over 90% of the business, and the deal was broadly welcomed by industry watchers as a move that could boost the company’s customer base, notably with Marks and Spencer.
The deal, which marked Greencore’s return to the M&A arena after its failed plan to merge with UK group Northern Foods, will give the company a solid food-to-go business but it also brings Uniq’s desserts operations, which have had their problems.
However, Uniq CEO Geoff Eaton believes that the company’s work in recent years to solve the problem of its pension deficit – which grew to over GBP400m – while maintaining its “high-quality service” will benefit its potential new owner.
“The building blocks are in place for the Uniq businesses to realise their full potential with a committed, long-term owner, such as Greencore,” Eaton said, as he announced a deal that looks set to bring an end to a challenging few years for the company.
