BRF has a potential US$900 million stock offering and these two players will be taking up the majority of this offering.
SALIC, which was formed in 2011 to secure food supplies for the desert kingdom through mass production and foreign investments, had previously partnered with BRF for a halal meat joint venture, Minerva.
The state fund already had a stake in Minerva before the joint-venture deal was struck, acquiring a 19.95% interest in 2015 and building it ups to 33.8% by 2020.
Together, they bought The Australian Lamb Company in the state of Victoria last year, adding to deals in 2021 for Australian sheep processors Shark Lake Food Group Abattoir and Great Eastern Abattoir.
“SALIC is a strategic investor and the partnership can and should improve BRF’s operations and the potential deleverage will bring an important cash flow relief for BRF,” XP Investimentos analysts said in a note.
This strategic decision will see SALIC expand its footprint in the Brazilian meat industry.
“Saudi Arabia has been BRF’s largest chicken importer in recent years,” analysts at Bradesco BBI said in a note to clients.
These analysts added that the proposed transaction could also “reduce investor concerns that recent cases of bird flu (so far only in wild birds) in Brazil could at some point lead to export restrictions.”
BRF said that SALIC offered to subscribe as much as 50% of a potential offering of 500 million new shares in the firm, with Marfrig – which currently owns 33% of BRF – pledging to buy the remaining 250 million shares.
However, both transactions are conditional. Under the terms of the deal, the offering must be priced at no more than 9.00 reais (US$1.82) per share, meaning that the total transaction value would be 4.5 billion reais (US$899.41 million).
Following the two pledges, BRF’s board held an extraordinary meeting and agreed to hire a financial advisor “to study the alternatives for carrying out the offer”.
Separately, Marfrig said its board had approved the share investment proposal and had a strategy to secure the funds for the transaction.
“Marfrig’s funds (for the BRF transaction) will come from its controlling shareholder, therefore not hurting Marfrig’s leverage,” XP Investimentos said.
To streamline its operations and focus on its meat business, BRF announced plans to sell its pet-food business according to a stock-exchange announcement on 28th February.