Category Archives: Companies

Evaluation of individual companies

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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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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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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Petrobras to raise up to US$ 2.3 Billion in IPO of it’s distribution subsidiary

BR Distribuidora, distribution arm of Petrobras (PBR), started yesterday the process that should be the largest IPO since 2013 in Brazil. With the sale of a maximum of 33.75% of its stake in BR, the parent company Petrobras may raise up to R$ 7.5 billion (US$ 2.3 Bi), an important figure for its divestment plan. This estimate takes into account the placement of all lots for sale and the ceiling of the indicative range of price per share, which ranges from R$ 15 to R$ 19, according to the prospectus released yesterday. In the pessimistic scenario, Petrobras would raise R$ 4.4 billion by selling 25% of the shares.

Considering the stock price range disclosed, BR should arrive on the stock exchange on December 15th , with a market cap between R$ 17.5 billion and R$ 22.1 billion (US$ 5.4 bi and 6.7 bi). Despite the expressive absolute valuation, it has a discount ranging from 26% to 40% against the trading multiples of one of its main competitors, Ultrapar, owner of the Ipiranga distribution network.

According to market sources, what explains the discount is the fact that, despite the governance safeguards included in its statute – such as the requirement that half of the directors be independent – the company will remain a state-owned company and, therefore, subject to political interference.

The perception in the market is that BR’s offer will not have demand issues. The question will be the price, to be officially set on December 13. While local managers will bargain discount, but should stay out, foreign investors have already given signs of interest. Because of the discount size offered relative to its peers, BR expects to attract enough demand to close the price between the middle and the ceiling of the range.

Adding the expected market cap range to the net debt of R$ 3.86 billion in September, BR should have company valuation between R$ 21.3 billion and R$ 26 billion. This concept of company valuation assumes that the company’s future cash flow will be shared between its shareholders and creditors.

When dividing this amount by BR’s adjusted profit before interest, taxes, depreciation and amortization (Ebitda) in the last 12 months, which was R$ 3 billion, one arrives in multiples of 7.1 times in the floor of the prices per share, 7.9 times at the midpoint and 8.7 times at the peak.

On yesterday’s trading session, Ultrapar’s shares traded at a multiple of 11.8 times its Ebitda in the last 12 months, hence the discount. Ipiranga represents 75% of the consolidated Ebitda of Ultrapar, which is a holding company.

Funding of Brazilian companies with debt and equity jumps to R$ 192 billion (US$ 60 bi)

The wind begins to shift to the capital market in the wake of falling interest rates to near historic lows and the contraction of bank credit after two years of deep recession. Since last year, the favorable environment has opened space and consolidates a trend of strong growth for corporate debt issues, along with capital openings and subsequent stock offers, which increasingly assume a major role as a source of financing for large companies .
Between January and September, data from the Brazilian Association of Financial and Capital Market Entities (Anbima) shows that the issuance of fixed income securities in Brazil and abroad by companies plus funding through variable income in the country reached R$ 176.3 billion, or three and a half times the volume of R$ 49.9 billion granted by BNDES in the same period, according to figures from the state bank itself.

For Sergio Goldstein, chairman of Anbima’s corporate finance committee, the expansion is expected to continue in 2018: “the economy probably accelerates next year and thus there’s no way the capital market does not come along.”

A singularly favorable situation fuels this movement of greater participation of the capital market as a source of funds: falling interest rates and prospects that it will remain close to historical lows for a prolonged period, low inflation, growth, albeit gradual, and a change in the policy of subsidized rates by the BNDES.

Unilever buys Brazilian brand of natural foods

Unilever announced this Monday (2) the acquisition of Brazilian brand Mãe Terra. The company specializes in natural and organic produce and was established in 1979. The acquisition cost was not disclosed.

Mãe Terra, which produces organig cereals, cookies and other snacks, has been growing 30 YoY and its acquisition is an attempt from the global giant to become relevant in the organic market in Brazil.

The acquisition is still pending standard  regulatory approvals

Itaú pays US$1.8 billion for 49.9% of XP Investmentos

After two months of discreet talks, Itaú Unibanco closed on Thursday (May, 11th) the purchase of 49.9% of the total capital of XP Investimentos for R$ 6.3 Billion, which includes R$ 600 million in resources that the bank will inject into the company. With the transaction, the country’s largest private bank reserves its space in the process of “de-banking” in progress, in which people are leaving traditional banks for brokerage accounts with banking services. “I believe this transaction will take Itaú and other banks out of the comfort zone, as it will strengthen XP and increase its ability to compete in the investment market,” said Roberto Setubal, co-chairman of Itaú Unibanco’s board of directors.

Kraft Heinz Offers a Merger with Unilever for $143 billion: Rejected for now

Unilever has rejected a $143 billion merger proposal from Kraft Heinz, the Brazilian-controlled food conglomerate 3G Capital and mega-dealer Warren Buffett, setting the stage for a battle between two of the world’s largest consumer products companies.The Anglo-Dutch company, behind big brands like the Dove soap and the Ben & Jerry ice cream, said the offer of $ 50 per share and new papers – an 18% premium on the closing price on Thursday (16) – “fundamentally undervalues ​​Unilever”.

“Unilever has rejected the proposal because it sees no merit, financial or strategic, for its shareholders. Unilever sees no basis for further discussions,” the statement said.

Kraft Heinz’s approach comes at a sensitive time for the UK, with its politicians and big companies trying to maneuver through the uncertainty generated by the country’s exit from the European Union. The decision to leave the world’s largest trading block caused a fall in pound sterling’s value, which made UK assets significantly cheaper and attractive to the attack by wealthy non-British investors.

Unilever has a complex shareholding structure, with papers listed on the London and Amsterdam stock exchanges.

Kraft Heinz said it had made “a comprehensive proposal for Unilever on combining the two groups to create a leading consumer products company with a mission of long-term growth and sustainable living.”

“Although Unilever has declined the proposal, the company is eager to work out an agreement on the terms of a transaction. There can be no certainty that any other formal proposal will be made to the Unilever board.”

Unilever said Kraft Heinz’s offer consisted of an existing Unilever payout of $ 30.23 in cash and a further 0.222 share of the company resulting from the merger.

Shares of Unilever rose 12.5 percent to 37.59 pounds on Friday, giving the company a market capitalization of 113 billion pounds, which means that any acquisition would be one of the largest in history. Its US-listed stocks rose 10.6% to $ 47.08 in pre-opening trading. It is the fourth largest company in the world of consumer products by sales, with revenue last year of 52.7 billion euros.

Under UK rules on takeovers, Kraft Heinz has until markets close on March 17 to make a firm bid or refrain from making a new bid for Unilever for six months.

This merger would unite some of the top brands in the global consumer industry, adding Dove and Knorr to Kraft Heinz’s list of Philadelphia cream cheese, Heinz ketchup and Weight Watchers.

News of the offer comes a day after Kraft Heinz shares fell nearly 5 percent, the biggest daily drop since the big merger that shaped the company in 2015. The company reported a 3.7 percent drop in quarterly sales Quarter and said it intended to step up cost cutting

Like many other consumer products companies, Unilever has been seeing slowing growth as consumers are not loyal to brands in mature markets and are increasingly turning to start-ups for new products.

Emerging markets account for 58% of Unilever’s sales, more than the industry average, and the company relies heavily on them to grow.

Kraft Heinz was formed in a $ 100 billion deal orchestrated by Buffett and 3G Capital in 2015 and has focused on aggressively reducing costs in the companies it has purchased, with the goal of saving $ 1.7 billion annually by 2018.

Analysts expect further consolidation in the industry and speculate that 3G could strike again, two years after its last big business. Some point to Mondelez International as a possible target.

In January, Unilever chief executive Paul Polman shocked investors by warning of “challenging” conditions in the first half of this year, after a slow 2016.

Unilever reported a 3% increase in pre-tax profit in 2016 to 7.5 billion euros, driven by a reduction in costs and an increase in efficiency that raised basic operating margins by 50 basis points to 15.3% .

Polman warned on the occasion that “difficult market conditions” would only ease in the second half of this year. “We expect a slow start, with improvement as the year progresses,” he said.

The immediate cause of poor performance in the last three months of last year came from India and Brazil: Unilever’s second and third largest markets, respectively, representing 14% of the group’s revenues.

Heineken Acquires Schincariol’s Owner, Brasil Kirin, for 664 Million Euros

Heineken Logo

The Dutch multinational Heineken announced on Monday (13) the purchase of Brazil Kirin, controlled by the Japanese group Kirin, for 664 million euros (R$ 2.2 billion). With the acquisition, Heineken becomes the second largest brewery in Brazil. After the conclusion of the deal, Brasil Kirin will be consolidated with Heineken.The transaction evaluates Brazil Kirin at 1.025 billion euros (R $ 3.3 billion), including debt. Brazil Kirin closed 2016 with a revenue of R $ 3.706 billion, against a revenue of R $ 3.698 billion a year earlier, and an operating loss of R $ 262 million, against R $ 322 million in 2015.

Schincariol LogoKirin Brazil has 12 factories and its own distribution network. The company has a particularly strong presence in the North and Northeast, where Heineken has less exposure. The beer portfolio, which includes brands such as Schin, Devassa, Baden Baden and Eisenbahn, has a market share of 9.9%. Brazil Kirin also has a line of soft drinks, with a market share of 2% in the category.

Heineken operates five plants in Brazil and distribution is done by Coca-Cola bottlers. The company said it expects significant cost synergies with the acquisition, with efficiency gains in production, logistics optimization and sales, general and administrative expenses.

Completion of the purchase is subject to the approval of the Administrative Council for Economic Defense (Cade).

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Luxottica to Acquire Brazilian Óticas Carol for € 110 million

Loja Óticas CarolThe Italian company Luxottica, largest company in the world for glasses, will buy Óticas Carol for € 110 million (R$ 368.6 million). The agreement was signed with the partners of the Brazilian company 3i Group, Neuberger Berman and Siguler Guff & Company, and depends on the approval of the Administrative Council of Economic Defense (Cade) to be concluded. Ronaldo Pereira, president of Óticas Carol, said that the request for approval will be sent to Cade in the coming days. The expectation is to complete the purchase this semester.

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The acquisition is the first move by the Italian group since the global acquisition two weeks ago of France’s Essilor International for € 46.3 billion. This operation gives rise to the largest global company of glasses and lenses, with market share of 32% in the world and 28.3% in Brazil, according to Euromonitor International.

The purchase of Óticas Carol in Brazil will lead Luxottica to the leadership in the optical market as well. Óticas Carol has 950 stores in operation in the country and closed 2016 with revenues of R$ 813.7 million, a result 21.4% higher than in 2015. Its market share is 2.3%, according to Euromonitor International .

In a statement, the president of Luxottica, Leonardo Del Vecchio, said the company will verticalize its operation in Brazil with the purchase. Overall, Luxottica has 12 optical networks and a total of 7,400 stores in operation on five continents. From January to September 2016, the company’s retail revenue grew 5.7% to € 3.297 billion and accounted for 81% of total revenue. Total revenue in the period rose 0.2% to € 4.085 billion.

In the Brazilian retail market, Luxottica entered in 2011 with the Sunglass Hut network, which reached 100 stores in the country in 2016, being 73 own units and 27 franchises. The goal was to reach 200 units in five years. “Luxottica has a major retail operation in the international market, but faced difficulties in Brazil to grow in this area, due to the complexity of the sector,” Pereira said.

Óticas Carol president added that with the purchase, the retailer gains a more robust structure to carry out its expansion plan. For 2017, Óticas Carol aims to open 175 franchise stores and reach a revenue of R$ 918 million. Pereira said that this goal can be changed in the coming months, depending on the definitions that Luxottica takes on the network.

Asked about the maintenance of two optical retail chains in the country, Luxottica reported that “Óticas Carol has proved to be efficient and effective in the market” and that “it is too early to discuss the future of Sunglass Hut, since the acquisition still needs Be approved by Cade. ”

The Brazilian optical market is very pulverized, with approximately 26 thousand companies in the country, according to the Brazilian Optical Industry Association (Abióptica). In addition to Óticas Carol, Óculos Diniz is among the leaders, with more than 900 stores, followed by Chilli Beans, with just over 700 units. The other networks have less than 100 stores.

For the president of the Abioptica, Bento Alcoforado, the acquisition will have limited effect in the sector. “Even if Óticas Carol opens another 150 stores this year, it will continue with a very small portion of the market,” said Alcoforado. He considers it possible to see new acquisitions in the sector throughout the year, as the Brazilian economy shows signs of improvement. Last year, the sector shrank 17% in revenues, to R$ 16.9 billion.

The deal between Luxottica and Óticas Carol took about a year. As part of the agreement, the contracts of Ronaldo Pereira and the directors of the retailer were renewed for another three years. Luxottica will continue to provide its frames and lenses to other retail chains in addition to Óticas Carol in the country.

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