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440 views update:Jul 28, 2006

It's all about power

Sadia offers to buy Perdigao for up to $1.7 billion. This announcement must have sent shivers down the spines of domestic and international competitors in the food processing market.

Sadia offers to buy Perdigao for up to $1.7 billion. This announcement must have sent shivers down the spines of domestic and international competitors in the food processing market.


These two powerful Brazilian players, well known for their huge market share in pig and poultry meat production and processing, have proven to be strong competitors on the international market. Some years ago they joined forces by setting up an export company to better serve their international clients. The possible takeover will create a powerhouse which would rank number three on the world market. And it was a desire to tap into that world market that initiated the move, Sadia says, because both companies want to boost sales abroad.


The real underlying reason is more complicated and interesting. A couple of months ago, Perdigao changed its statute to make a takeover less complicated, which initiated international interest. Rumours indicate that both Tyson and Smithfield, US companies strong in poultry and pork, are keen to enter the Brazilian market trough a major takeover. Shares of both Sadia and Perdigao have dipped recently in response to the AI crisis and consequently reduced sales. This made both companies easy takeover targets, especially Perdigao. The acquisition makes Sadia the hunter rather than the hunted. It will move the company closer to its goal of overtaking its international rivals.


Although insiders don't expect real problems, the question remains whether the Brazilian anti-trust agency will approve the takeover. This is going to be a test for them, since the Sadia/Perdigao combination will be a dominant player on the domestic market for ready meals, pizzas, pies, hams and more. Analysts say, however, that the domestic market will only be marginally affected because the Brazilian supermarkets are strong enough to prevent monopolisation of the meat market by one party.


The takeover will have no effect on the production capacity and expansion plans of either company, and no major saving are expected from synergy. It is interesting to hear that producers favour the merger. They see more benefits than risks. We will have to wait and see whether this is the case.


The international poultry meat market is tough and will remain so. It creates a climate for strong companies to take over or eliminate weaker competitors. In some parts of the world, we have seen trends in this direction for some time already. It seems that we are entering an era where the big players are also hunted to create stronger powerhouses. Country borders are not barriers anymore, but, like in Brazil, company mergers and takeovers often seem to include a form of self defence against 'foreigners'. In a game that's all about power, it is unclear how long this will continue.

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