Marfrig's upcoming initiatives primarily revolve around debt reduction and the integration of BRF, a significant merger event.
**Marfrig's Merger and Growth Strategy**
Marfrig, a leading Brazilian beef producer with extensive international exposure, has proposed to absorb its rival BRF in its entirety in a deal that seems to offer significant benefits without demanding a substantial premium from BRF's shareholders. The final stage of the merger is still pending approval from Brazil's regulatory entity, CVM.
The proposed merger is expected to boost Marfrig's financial performance, with an anticipated increase in adjusted EBITDA by 59% to BRL 13.6 billion in 2024, supported by a 9.5% margin. The deal promises substantial financial benefits, including tax optimization that could yield up to R$3 billion in present-value tax savings. Additionally, there are estimated annual synergies of R$805 million in commercial/logistics and R$485 million in revenue/cost synergies.
Marfrig's focus on high-value markets like Japan and South Korea is driving growth. Despite challenges in North America due to rising cattle prices, the company benefits from its strong balance sheet and strategic asset management. The company aims to achieve a 10% EBITDA margin post-merger, with the push into value-added products bolstering margins to counter input cost pressures.
Slaughterhouse utilization exceeds 90% in South America, driven by strategic cattle confinement, ensuring quality and sustainability. In North America, EBITDA dipped 22% due to input cost pressures, but the company is focusing on more lucrative markets elsewhere.
Marfrig has reduced its net debt by 12% to USD 6.3 billion, with leverage ratios improving to 2.47x in USD and 2.82x in BRL by late 2024. This disciplined approach to debt management supports financial resilience.
Extraordinary dividends are planned, with BRF paying out up to R$3.5 billion to its shareholders and Marfrig paying out R$2.5 billion to its shareholders. The merger is expected to provide Marfrig with a large exposure to the poultry market, accounting for more than 85% of the company's EBITDA.
In North America, Marfrig's strong demand for beef resulted in a 15.4% year-over-year increase in revenues, but costs limited margins due to rising beef prices. In South America, Marfrig's revenues decreased 20% quarter-over-quarter but increased 32% year-over-year due to operational ramp-up of new slaughter and deboning capacity.
The exchange ratio was 0.85 for each Marfrig share for each BRF share, giving BRF shareholders a discount of up to 15%. Marfrig has been moving away from high leverage towards more conservative management, attracting bulls due to deleveraging and free cash flow generation. The net debt/EBITDA ratio stands at 2.7x, a reduction of 0.13x with respect to Q4'24, marking a significant drop since the focus on deleveraging began in Q2'23. BRF's operations contributed another 40% of Marfrig's adjusted EBITDA in Q1, with net revenues increasing 15.7% and adjusted EBITDA increasing 30% year-over-year.
In conclusion, Marfrig's proposed merger with BRF is expected to enhance the company's global position, diversify geographically, and improve operational efficiency while maintaining a strong focus on deleveraging. Investors are primarily interested in the company's free cash flow and deleveraging progress.
- The merger between Marfrig and BRF could offer opportunities for personal-finance investors who are interested in business ventures, as the deal promises substantial financial benefits and tax optimization that could potentially yield up to R$3 billion in present-value tax savings.
- For those in the field of finance and investment, the merger could be an attractive opportunity due to Marfrig's focus on high-value markets like Japan and South Korea, as well as its aim to achieve a 10% EBITDA margin post-merger and bolster margins with value-added products.
- The proposed deal is not just beneficial for professional investors, but also for individuals concerned with environmental issues, as the merged company is committed to ensuring quality and sustainability in its Slaughterhouse utilization in South America, which exceeds 90%.
