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Canadian McCain acquires 49% of Brazilian producer of cheese bread, Forno de Minas

McCain do Brasil Alimentos, a subsidiary of Canadian-based McCain, maker of pre-fried and frozen potatoes, has entered into an agreement to acquire a 49% stake in Forno de Minas Alimentos. The value of the acquisition was kept confidential by the parties.

Helder Mendonça, president of Forno de Minas, said the negotiations lasted about ten months. “Last year, we looked for alternatives to the Bozano fund, which had a 29.3% stake in Forno de Minas. The objective was to attract a financial partner, but the opportunity came with McCain”, he said.

According to the executive, the two companies realized that there were many affinities and saw possibilities of synergy in Brazil and abroad. “McCain is going to help us in the process of globalizing cheese bread sales”, said Mendonça. “In Brazil, I see synergies mainly in the commercial area”.

McCain operates in Brazil with the sale of frozen pre-fried potatoes, which are produced and imported from its factories located in Argentina, France, the Netherlands and the United States.

“This agreement presents a great opportunity for both companies, which have very strong brands in the Brazilian market. We trust in the success story of Forno de Minas and in the management of the Mendonça family to continue leading the company”, said Aluizio Periquito Neto, General Manager of McCain Brazil.

Under the agreement, McCain, through its Brazilian subsidiary, will acquire 29.3% of the shares belonging to the Bozano Group and a portion of the shares that are in the hands of the founders of Forno de Minas – Helder Couto de Mendonça, Maria Dalva Couto Mendonça, Hélida Stael Mendonça and Vicente Camiloti – totaling 49% of the capital.

“With this transaction, we are revitalizing Forno de Minas and we will be able to accelerate growth projects in Brazil”, said Mendonça. Without citing figures, the executive said the company intends to invest in the expansion of factories in Conceição do Pará and Contagem (MG) to develop product lines.

In the accumulated period from January to September 2017, the company recorded a net loss of R$ 18.5 million (aprox. US$ 6 million). Net revenue was R$ 232.6 million.

Forno de Minas is a family business founded in 1990. In 1999, the control was sold to the American multinational General Mills. In 2009, the founding family repurchased the business. In 2010, Forno de Minas received an investment from the Mercatto investment fund, which assumed a 29% interest. In 2013, the Bozano Group acquired Mercatto, becoming a shareholder of Forno de Minas.

In January of this year, Forno de Minas decided to cancel its registration as a publicly traded company and close its capital.

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Fitch downgrades Brazilian sovereign rating to BB-

Credit rating agency Fitch today downgraded Brazil’s sovereign rating to “BB-” from “BB”, and changed the outlook from negative to stable.

According to the agency, the cut reflects the persistence of the large fiscal deficit, a high and growing government indebtedness and the failure of legislative reforms that could improve the structural performance of public finances.

S&P Global Ratings had already cut the Brazilian note. Last month, the agency downgraded Brazil’s rating to “BB-“, with a stable outlook.

Fitch noted that “the government’s decision not to put Congressional Pension reform to vote anymore represents a major setback on the reform agenda, which undermines confidence in the medium-term trajectory of public finances and the political commitment to address the issue”.

According to the agency, “the occurrence of a presidential and legislative election in October means that pension reform will only occur after the election and that leaves uncertainties as to whether the next administration will be able to get approval in a timely manner”.

Fitch pointed out in the analysis that the Brazilian fiscal deficit “remains large and with the prospect of only a gradual decline.” For the agency, the deficit reached 8% of GDP in 2017, a result well above the median of 3% for countries in the same Brazilian sovereign note range, “BB”. The agency also projects that the average public deficit will reach 7% of GDP between 2018 and 2019.

Government general debt reached 74% of GDP in 2017, meaning significantly above the 45% of GDP of the bloc countries with a “BB” rating. Fitch predicts that public debt will reach 80% of GDP in 2019 and maintain growth in the coming periods.

According to the agency’s analysts, “social security reform and other spending adjustment measures appear to be essential components of any strategy to facilitate fiscal consolidation, boost confidence in the medium-term public finance trajectory, and make the spending ceiling, an important anchor of fiscal policy, viable and credible in the medium term”.

The agency also commented on the transfer of R$ 130 billion to the government by the BNDES in an operation to repay resources borrowed by the Treasury as a factor that could “ease debt growth this year”. But the agency considered the measure as “insufficient” to stabilize the public sector’s debt path, as it is a one-off event.

Despite calling attention to the uncertainties and challenges associated with the election this year, Fitch said “do not anticipate a turnaround toward greater state interventionism and populism as a result of the campaign.

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Government is now evaluating changes to the pension plan without touching the constitution

After giving up on the Social Security reform – amid federal intervention in the security area of ​​the State of Rio de Janeiro, a measure that prevents changes in the Constitution while it is in force – ministers of the economic area now study changes in pensions that do not depend on constitutional amendments, said journalist Miriam Leitão in her blog on the website of the newspaper “O Globo” and in her participation in TV Globo’s “Bom Dia Brasil” program earlier.

The changes could be made during the federal intervention in Rio without even having to suspend the “state of exception”, says the columnist.

According to her, the ministers have studied measures that can improve the situation of the public accounts without moving on the Brazilian Magna letter. The idea would be to prioritize simpler procedural issues, without depending on the approval of three-fifths of each house of Congress in two rounds, as is the case of amendments.

The focus now would be on rules that change the benefit calculation and bring some fiscal relief in the future.

Walmart to divest from Brazil: looking for partner

Walmart LogoAfter just over two decades in the Brazil, Walmart is negotiating the sale of part of its business in Brazil. The company has already started looking for a partner. But the model of the operation still depends on the proposals that are being presented to the retailer. At least four companies, including asset managers and private equity funds, are in talks with the company. They are: Advent, Catterton, Carlyle and General Atlantic.

The ongoing talks with private equity manager Advent International would involve the sale of 50% of the Brazilian subsidiary, newspaper “O Globo” reported yesterday. Both Advent and Walmart do not comment on the subject.

The US parent is taking direct care of the negotiations. Goldman Sachs has been advising the American group in the operation.

According to sources, there is a search for proposals for different options to structure this operation in the most convenient way for Walmart.

It is possible that the sale is of a minority slice or even the control of the two integrated operations (online and brick and mortar). Both options will be evaluated, according to a source. This is considered a sensitive trading, since it is not a practice for the American retailer to trade assets with investment firms. In the world, Walmart controls most of its business. In China, they have a minority partner.

When analyzing the parties interested, Catterton already has a retail operation in the country – it’s a partner in St Marche and Eataly. In the case of Carlyle, the fund also has retail operations in its portfolio – executive Hector Nuñez, president of RiHappy, was CEO of Walmart Brazil from 2006 to 2010.

Due to the complexity of the food retail business, and the results that the subsidiary has been presenting, industry executives think there is little room for a large number of interested parties.

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With 471 stores and ranking third among the largest food retailing groups in the country, Walmart did not grow in 2015 and 2016 when it achieved gross sales of R$ 29.4 billion (US$ 9 billion) – there is no data from last year. Until 2017, when it stopped detailing Brazil’s results in the world’s balance sheet, operating profits were alternated with losses in different quarters.

In the country, Walmart suffered in the past with errors in conducting the operation. There was too much interference from the headquarters, with mistaken decision making. The integration of networks bought in the country took years and the results were slow to appear. The integration process was finalized in 2016 and the subsidiary is currently running a R$ 1.5 billion plan to reform all supermarkets and hypermarkets in an attempt to breathe new life into the operation. This process is supposedly bringing some sales results to some stores.

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S&P Downgrades Brazilian Credit Rating to BB-

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Standard & Poor’s (S&P) downgraded Brazil’s sovereign credit rating from “BB” to “BB-” on Thursday. The rating was already in Junk territory, but it is now three steps below investment grade. On the other hand, the perspective for the rating has changed from negative to stable.

The downgrade was already expected by the market due to difficulties the government is facing to get the pension reform approved.

In the justification for the decision, the agency pointed out as “one of the main weaknesses of Brazil” the delay in approval of fiscal measures that rebalance the public sector accounts.

“Despite several advances by the Temer administration, Brazil has made slower-than-expected progress in implementing significant legislation to address structural fiscal issues and rising levels of indebtedness”, S&P said in a statement, adding that uncertainties of the 2018 elections aggravate this scenario.

In addition to the difficulty in approving reforms with long-term effects, S&P also pointed out that “there have been setbacks even with short-term fiscal measures – such as the decision to suspend the postponement of salary increases for public sector employees”.

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Brazilian CVM Vetoes Acquisition of Bitcoins by Local Investment Funds

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The Brazilian Securities and Exchange Commission (CVM) has decided to not allow local investment funds to directly acquire bitcoins and other criptocurrencies by . On the other hand, the commission does not yet have a conclusion on investments in the modality through funds abroad, in places where the operation is already allowed.

The orientation from the Institutional Investor Relations Superintendency (SIN) is for the market to wait for a later and more conclusive report from the technical area, which should occur only in March.

The regulator’s guidance is in a statement released on Friday (12). The CVM recalls that Brazil and other countries have discussed the legal and economic nature of these investment modalities, without a final conclusion on the concept, especially in the “domestic market and regulation”.

“Thus, based on this uncertainty, the interpretation of this technical area is that the crypto-coins can not be qualified as financial assets … and for this reason, their direct acquisition by the regulated investment funds is not allowed”, says the document.

The CVM also received consultations on the possibility of setting up investment funds in Brazil with the objective of investing in other vehicles abroad that invest in cryptocurrencies. Or, to invest in derivatives created in regulated environments in other jurisdictions.

In the letter, CVM reminds that the existing discussions about the investment in crypto-currencies, either directly by the funds or in other ways, are still at a very incipient level. The document cites Bill 2.303 / 2015, which, if approved, may prevent, restrict or criminalize the negotiation of these investment modalities.

Lady Gaga wears Schultz, posts on Instagram and helps the brand in US expansion

A free endorsement from Lady Gaga is a great way to start a foray into the US market even though it seems that the retail landscape could turn into a kind of desert.

The singer and fashion icon posted on Instagram on Saturday (9) photos of her posing in Dallas with a pair of Schutz high-heeled leather shoes. Facing a fashion emergency considering Gaga’s nearly 27 million followers, Brazil’s Arezzo Indústria e Comércio, owner of the Schutz brand, quickly filled a plane and shipped it to the US.

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We will send “whatever it takes,” Daniel Levy, chief financial officer of Arezzo & Co, said in an interview at Bloomberg’s Sao Paulo office.

He also quoted Kate Middleton and Gigi Hadid as fans of Schutz. “We did not pay.” A post like Lady Gaga’s, he said, “would be worth $ 100,000.”

The timing could not be better for Arezzo & Co, who has a staff of 25 people in New York and is about to open its first two Schutz stores, probably on the East Coast in 2018.

It’s a bold move at a time when other retailers are closing dozens of stores – Michael Kors could close as much as 125 – and rivals like Kate Spade are being devoured. In addition, this year’s forecast for US retail sales was reduced by the National Retail Federation after the country’s Census Bureau changed personal income and consumer values.

However, Schutz is confident that this is the right time and place to make a bet.

“We are financially sound. We are a strong cash generator and we have an extremely efficient working capital structure”, said Levy.

The Schutz brand is already sold at Nordstrom and at multi-brand stores in Beverly Hills and New York. Next year, Arezzo & Co will open at least two stores on the East Coast, possibly at the Short Hills mall in New Jersey and the Aventura Mall in Florida. If these stores perform well, Arezzo will redouble its commitment in 2019. According to Levy, the brand is better than Steve Madden and cheaper than Stuart Weitzman.

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Economists reduce Brazil inflation forecast for 2017 and the next 12 months

Market economists reduced their estimate for inflation by the Broad Consumer Price Index (IPCA) in 2017 and in the next 12 months, according to the average forecast in the Focus Bulletin, released on Monday by the Central Bank (BC) .

For this year, inflation bets were reduced from 3.03% to 2.88%, below the floor of the target for the calendar, of 3%. The center of the inflation target is 4.5%. In 12 months, the projection for the advance of prices increased from 3.96% to 3.91%. For 2018, the estimate was maintained at 4.02%.

Last Friday, the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA slowed the rise to 0.28% in November, after rising 0.42% a month earlier.

The average estimate for economic growth had a new round of upward adjustments after the IBGE revised positively the Gross Domestic Product (GDP) figures for the first and second quarters of this year. Thus, the projections went from expansion of 0.89% to 0.91% in 2017 and advance from 2.60% to 2.62% in 2018.

For the basic interest rate, Selic, at the end of 2018, the projections were maintained at 7%

IPCA inflation index slows down in November, according to IBGE

Inflation measured by the National Extended Consumer Price Index (IPCA) slowed to 0.28% in November, from 0.42% in October, the Brazilian Institute of Geography and Statistics (IBGE) reported Friday.

In the same month of 2016, the increase had been of 0.18%. Therefore, official accumulated inflation accelerated in 12 months: from 2.70% in October to 2.80% in November, according to the institute.

The IPCA in November was below the average of 0.35% estimated by 27 consultancies and financial institutions. The range of projections was from 0.31% to 0.47%. For the accumulated 12-month period, the expectation was of an increase of 2.88% in the prices

In the 11 full months of the year, the IPCA accumulated a rise of 2.50%, the lowest inflation for the period since 1998 (1.32%). Thus, with just one month remaining in 2017, inflation is below the target floor of 3% – the center is 4.5%, with a margin of 1.5 percentage points up or down.

Brazilian stocks and Real fall amid difficulty in approving pension plan reform

Brazilian financial market reacts negatively again to the noise surrounding the pension reform. According to professionals, this morning’s news brought more negative elements about the possibilities of the government being able to approve the reform, which was reflected in the dollar, interest rate hikes and in the fall of the Ibovespa stock index at the opening of the trading session.

But, half an hour after business started, prices have worsened, reacting to comments from House of Representatives president, Rodrigo Maia, that would have expressed a more pessimistic reading regarding the number of votes to approve the reform.

This market behavior confirms the investors’ sensitivity to the pension plan reform news, something that has already been happening in the last sessions and that intensifies as the deadline for voting approaches.

The importance of this reform for the Brazilian stock, currency and interest markets has already been explained in this article from June in this blog.