Brazilian packaged food companies BRF SA and Marfrig Global Foods SA on May 30 entered into exclusive talks for a potential merger, according to separate announcements from the companies.
The parties signed a memorandum of understanding and entered a 90-day negotiation period to review the benefits of a possible combination and determine the most efficient corporate structure to be adopted.
The companies' combined market capitalization was about US$7 billion at market close May 30.
BRF and Marfrig said the proposed transaction may include the consolidation of their assets as well as their shareholders in a new company. They expect the combined company to secure a leadership position in the markets in which it will operate and reduce its exposure to sector risks due to the balance and complementarity of their products, services and geographic diversification.
Under the terms of the memorandum of understanding, the valuation of any combination will be determined based on the average of the daily weighted price quotation of the shares of each company between April 15 and May 29. This would result in an 84.98% equity ownership by the shareholders of BRF and the remaining 15.02% will be held by shareholders of Marfrig.
BRF noted that the companies will conduct reciprocal due diligence during the exclusivity period, which can still cause the terms of the transaction to be adjusted. The companies also noted that there is no guarantee a transaction will be implemented.
The news follows BRF reporting a loss of 1.0 billion Brazilian reais for the first quarter ended March 31.
As of May 30, US$1 was equivalent to 3.96 Brazilian reais.