Let’s talk about a great company: Brasil Foods (NYSE: BRFS).

Background (via Wikipedia)


Brasil Foods (here abbreviated to BRF) is a public company resulting from the 2009 merger between Perdigao S.A. and Sadia, both large Brazilian-owned food corporation. The company has 42 factories and employs 120,000 people. BRF is the world’s tenth-largest food company and Brazil’s second in revenue, after global giant JBS. Sadia and Perdigão are BRF’s main ongoing food brands. Brasil Foods is present in over 110 countries. The company has 60 industrial plants in Brazil and four worldwide, 36 distribution centers and 24 global offices. The company’s main competitors are: JBS, Marfrig, Tyson Foods and Bunge

Merger issues
 
“The merger never ends.” The phrase mentioned recently by the company’s president Jose Antonio do Prado Fay, shows well the mood of the executive running the largest poultry, pork and frozen food company in Brazil.Living a nightmare since May 19, 2009, when the Sadia/Perdigao merger was announced, BRF only received the CADE (the equivalent of the Federal Trade Commission to ensure market competitiveness) stamp approval in July this year…. more than two years later! 

Acording to Brasil Economico, the conditional approval forced the company to sell a number of assets,such as factories and brands (like Rezende). The obvious acquirer (and already highly leveraged), Marfrig announced recently the signing of an agreement to purchase these assets from BRF.

But the truth is that the CADE will always be a shadow to BRF’s expansion plans. If the company tries to grow inorganically in poultry, for example, the CADE will block the deal.

International expansion
In this challenging scenario, Fay decided to make some investments after two years of “hands tied” and started to expand the company abroad. 
 
“Brazil should remain strong next year, while international markets are more concerning due to the European crisis. Our strategy is very focused on the emerging world. We have to occupy an important leadership position in countries like Argentina, which will eventually be an important global player in poultry trading, ” he said.
 

Chinese market 

In addition to the US$120 million factory that BRF will build in Abu Dhabi, the company’s main focus is in the more distant Chinese market.BRF has had distribution centers in China for the last 13 years, but the Asian giant wants to partner up through a joint-venture with a local public company called DCH (Dah Chong Hong Limited). Depending on its performance, BRF may soon build a plan in China as well.
 

“China is a huge country, with a high consumption rate but also with a lot of challenges when it comes to laws, rules and business demands,” said Wilson Mello, BRF’s vice president of corporate affairs. In addition to the export of poultry, BRF also received the Chinese government approval to start exporting pork. 

Stock performance
We have previously posted that BRF was among our favorite five stocks for 2011, in addition to the fact that it was one of the year’s best performers of the iBovespa index, with a gain of about 27%.
Investors can only be praise the company when they see such a performance (see graph below)…

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