Brazil’s fourth largest beef processor, Rodopa Alimentos, was sold last week for approximately BRL200 million (US$100 million) in a management buyout to a consultancy run by its executive director, a former chief executive of JBS SA, reports Brazil’s Valor Economico newspaper and Exame news magazine.
The buyout includes the assumption of Rodopa’s debt, totaling BRL160 million (US$78.3 million), which should be paid by the company following this injection of new cash. New shareholders won’t inject additional new cash to pay the debt.
Management buyouts are unusual in Brazil, and consist of a company being acquired by its own officers, in this case the main shareholder being executive director Sergio Longo, a former chief financial officer for JBS, and his company Selo Consultoria, which specializes in bankruptcy restructuring for meat processors.
Rodopa’s new ownership will aim to lengthen its debt and increase the role exports play in revenue. The company reported a net debt of BRL146.6 million (US$71.7 million) in the second quarter, 80 percent of which was short term. About 20 percent of Rodopa’s sales now come from beef exports.
The company generated sales of BRL759.2 million (US$371.6 million) from January through September, up 21.1 percent from the same period a year ago. Rodopa will aim to double its current beef slaughter capacity from 3,000 head per day to 6,000, through the acquisition or lease of two new slaughter facilities, preferably deciding on sites before the year ends, Longo told Exame.
The company now has four cattle slaughterhouses, in Ipuã and Santa Fe do Sul, Sao Paulo state, Goiás, Goias state, and Cassilândia, Mato Grosso do Sul state, as well as a food-service portioned cuts plant in Cajamar, Sao Paulo.
Coordinated by South Africa’s Standard Bank, the acquisition comes with an annual interest rate of 12.5 percent, and bonds maturing in 2017. Rodopa and its former private family ownership had been seeking a foreign investor or buyer since last year, Valor Economico reports, though negotiations moved slowly in the first half of the year because of the global economy.
Fitch Ratings has affirmed the 'B-' Foreign and Local Currency Issuer Default Ratings (IDR) of Rodopa Industria e Comercio de Alimentos S.A. (Rodopa) as well as its 'BBB-(bra)' Long-Term National Scale Rating. The Rating Outlook is Stable.
The ratings affirmation follows the October 11th announcement that Rodopa's current shareholder, Paulo Bindilatti, agreed to sell the company's ownership to Selo Consultoria (Selo), a consultant company held by Mr. Sergio Longo, the main executive of Rodopa. The change of control is not expected to affect the company's business and financing strategies, as the current management team will remain in place. Mr. Longo has been part of Rodopa's management since 2010 and prior to the acquisition was the main decisionmaker of the company.
According to the announcement, the acquisition will be financed by Rodopa's cash. Concurrent with the change of control, Rodopa issued USD100 million (about BRL200 million) in unsecured bonds. Most of the issuance proceeds will be used to repay short-term debt and strengthen Rodopa's liquidity, while a smaller part will finance the transaction, through the extra dividends distribution.
In Fitch's view, the transaction will not have a material negative effect on Rodopa's capital structure and is not sufficient to trigger a ratings change. The company's net leverage is expect to be close to 3.0x by the end of 2012, higher than the recent 2.2x as of the last 12 months ended June 2012, and the 2.5x previously expected by Fitch. This leverage is still in line with the current ratings and continues to incorporate the above-average risk of the beef industry.
The issuance should make it easier for the company to meet its short-term obligations and expansion strategy, which was already incorporated into the ratings. In June 2012, Rodopa had BRL200 million of adjusted consolidated debt, including BRL7 million of rental obligation. Short-term debt was BRL160 million, and the cash and marketable securities position was BRL37 million.
Potential Ratings or Outlook Drivers:
A downgrade may occur in the case of increased leverage over and above Fitch's expectations as a result of a more aggressive expansion program, deterioration in the operational margins or weaker liquidity.
The ratings may be positively affected by a sustainable improvement in Rodopa's business profile, combined with maintenance of conservative leverage, consistent improvements in liquidity, and manageable amortization schedule.