Brazilian poultry companies to merge

Brazil’s largest food company Perdigao is to take over its rival Sadia to create the world’s largest poultry processor in terms of market value.

The share-swap agreement will lead to the formation of a new company – Brasil Foods – which is to be based in Itajai. And according to Economatica, the resulting company would have an annual revenue of $11bn (£7.2bn) and be Brazil’s largest employer, with more than 110,000 workers.

“We are creating a champion,” said Sadia chairman Luiz Fernando Furlan, who described the new firm as having “the musculature for world competition”.

Combining the two companies will generate 2bn Reals (£0.6bn) of cost savings in distribution and production, according to Denise Messer, an equity analyst at Brascan Corretora in Rio de Janeiro. The two companies estimate that the potential cost savings could be as much as double that figure.

The combined new company would become the third-biggest meat processor in the Americas by sales after Tyson and Brazilian competitor JBS.

Both companies had been struggling for some time highlighting the fragile state of the Brazilian poultry sector as the effects of worldwide economic downturn take hold.

Back in March, Sadia posted its first annual loss in company history after large losses on currency derivatives during the last three months of 2008 and it also posted a net loss during the first quarter of 2009. This resulted in the company seeing its largest fall in the value of its shares.

Perdigao also booked a first-quarter loss due to a tax loss on its Perdigao Agroindustrial subsidiary.