Sunday, June 2, 2019

BRF SA Shifting Gears As It Contemplates A Merger With Marfrig

As I’ve written extensively in the past, BRF SA (BRFS) management has a lot on its plate trying to turn around this large Brazil-based poultry and processed food company. After years of ill-advised (or at least unfocused) M&A and scattershot business plans carried out by prior management teams, BRF found itself saddled with debt and an inefficient operating structure, leading to the entry of Pedro Parente and a completely new management team.

While there had been some signs of progress with the turnaround plan, and the outbreak of African Swine Fever in China has been a net positive for Brazilian protein companies, management is now considering a sharp change in strategy by entering into merger negotiations with Marfrig (OTCPK:MRRTY).

On balance, I’m not sure the advantages of a merger with Marfrig outweigh the challenges, but it does at least kick the can down the road in terms of showing results from the turnaround. Moreover, there aren’t going to be too many opportunities like this for BRF. While I continue to believe that BRF could be worth substantially more than its current share price down the road, I’m not sold on the idea that adding more complexity is the best way to build value.

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BRF SA Shifting Gears As It Contemplates A Merger With Marfrig

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