Chicken Giant BRF Still Sees Beef on Deals Menu, CEO Says

(Bloomberg) -- Brazilian chicken giant BRF SA remains open to deals that would increase its product and geographical reach after ending merger talks with beef heavyweight Marfrig Global Foods SA.

The Sao Paulo-based company could engage in negotiations for non-cash mergers, strategic partnerships or long-term supply agreements to give it further access to beef supplies as a way to boost its food-service and processed-food businesses, according to Chief Executive Officer Lorival Luz.

BRF, which also produces pork, would “ideally” have a third protein source as the company seeks to develop new products, Luz said in an interview in Sao Paulo. The company isn’t pursuing any beef transaction at the moment, he said.

“Bovines are on the map -- the question is how, when,” he said.

BRF has emerged as a likely winner from the spread of a deadly pig disease that is slashing hog supplies in China, the world’s largest pork consumer, as U.S. rivals have faced limited access to the Asian nation’s market. Shares have jumped 55% in dollar terms this year.

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Marfrig Talks

BRF surprised investors in late May by saying it was weighing a merger with Marfrig, the world’s largest beef producer after JBS SA. Its shares initially sank on the news amid concerns about the ownership structure and how much value would be extracted given Marfrig’s track record of poor results and thin industry margins.

Talks with Marfrig, which would have given BRF a desired presence in the U.S., ended even before studies on potential synergy gains could be completed as the meat producers didn’t agree on how the new company would be managed, Luz said. While chicken and processed-food producer BRF has a dispersed share ownership, Marfrig is controlled by its founder Marcos Molina.

Hog Disease in China Won’t Spur Big Meat-Market Shift, BRF Says

BRF is now focused on returning to profit in 2019 after posting losses for the past three years and on reducing net debt to below three times earnings before interest, taxes, depreciation and amortization by next year, Luz said. Also, the company is in advanced talks with more than one player on a partnership to produce chicken in Saudi Arabia, where it already has a dominant position.

“It’s a priority for BRF. I would like to see talks concluded by year-end,” Luz said.

To contact the reporters on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net;Tatiana Freitas in São Paulo at tfreitas4@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi, Patrick McKiernan

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