With this acquisition, Marfrig hopes to consolidate its position in the beef industry.
National Beef currently exports to 40 countries, including Japan, which is a market currently closed to beef exports from Brazil. In 2017, Marfrig reported adjusted EBITDA of R$1.7 billion (US$516bn). With National Beef, its pro-forma EBITDA will increase to R$3.4bn (US$1bn).
“The acquisition of National Beef represents the realisation of a unique opportunity,” said Marfrig CEO Martín Secco. “With the transaction, we will have operations in the world’s two largest beef markets, will gain access to extremely sophisticated consumer countries and will be able to grow while maintaining rigorous financial discipline.”
It also hopes to improve its leverage ratio. Upon closing, Marfrig will consolidate 100% of the results of National Beef. Last year, Marfrig’s total debt corresponded to 4.55 times its EBITDA. With the acquisition, this ratio decreased to 3.35 times. The transaction will be financed by a loan from Rabobank.
“The acquisition of National Beef reflects our sustainable growth strategy,” said Marcos Molina, chairman of the board of directors of Marfrig Global Foods. “From now on, we have become the Brazilian company of the sector with the best financial health, proved into the lowest rates of leverage.”
In 2017, National Beef reported sales of US$7.3bn (R$24.3bn) and, since 2011, has been controlled by Leucadia National Corporation, which currently holds a 79% interest.
It has two slaughterhouses located in Dodge City and Liberal, Kansas, with a slaughtering capacity of 12,000, which accounts for approximately 13% of total US cattle slaughtering capacity.
Once the transaction closes, Leucadia will transfer control to Marfrig and remain a minority shareholder in National Beef, with a 31% interest. US Premium Beef, an association of American producers, will hold 15% and other shareholders will account for the remaining 3%. When completed, Marfrig will become the world’s second-largest beef processor, with consolidated sales of R$43bn (US$13bn). Leucadia and the other investors have agreed not to sell their shares in National Beef for at least five years.
The key executives of National Beef, including CEO Tim Klein, will continue to manage and remain at the company. The board of managers at National Beef will consist of nine members, five of whom will be nominated by Marfrig, two by Leucadia and two by the other minority members.
“We are pleased to remain a significant shareholder in National Beef and to partner with Marfrig and the company’s management team in its continued development,” said Rich Handler, CEO at Leucadia and Brian Friedman, president of Leucadia.
Marfrig also announced plans to sell Keystone Foods, a supplier of value-added food products to foodservice, retail and convenience, and industrial brands. This sale, together with the National Beef transaction, is expected to help Marfrig achieve its goal of reaching a leverage ratio of 2.5 times by the end of 2018.