Who Benefits from Brasil Foods Breakup?

One of them is Cargill owned Seara Alimentos SA. It operates in the same processed food and animal proteins market as Brasil Foods brands Sadia and Perdigão. Seara is no stranger to lawsuits against Sadia, which merged with Perdigão in 2009 following a bad derivatives bet against the dollar that nearly bankrupted the company. Seara filed lawsuits claiming $48.9 million in damages in late 2009.

Tyson-owned Frangobras, purchased in September 2008, could also see some market share growth if Brasil Foods was forced to sell.

Brazilian owned Globoaves, which sold Frangobras to Tyson, and southern Brazil processed meats company Aurora Foods, might find breathing room as well.

It is unclear exactly what companies have filed complaints with the anti-trust corporate competitiveness group, CADE. Federal prosecutors in São Paulo have filed complaints against the deal and continue to do so.

Brasil Foods is a massive company, and has more than half the country's market share in frozen foods. Under the old Perdigão company, Brasil Foods is also a dairy company. But the dominant factor is distribution, and animal proteins. Sadia and Perdigão dominate the shelves in grocery stores, especially in south and southeastern Brazil.

It has over 110,000 employees and a current market cap of around $14.5 billion, making it the biggest food producer in Brazil, which happens to be the world's leading beef and poultry exporter.

Sadia and Perdigão filed their papers with the anti-trust department's System of Economic Defense, or SBDC, on June 9, 2009. At the time, the companies signed an agreement with CADE to Preserve Reversibility of the Operation in order to guarantee the government that the companies could dissolve the merger if the transaction was not approved by CADE. Shares of both companies were delisted on the BM&F Bovespa and the New York Stock Exchanges in 2009.

Once the case arrived to CADE, it was given to councilor Carlos Ragazzo to lead. Ragazzo gave his vote in the 492nd Ordinary Session of Judgement on June 8, positioning himself against the creation of Brasil Foods. After Ragazzo's vote, councilor Ricardo Ruiz asked the Board to examine the records himself, and the process is now under analysis.

CADE is expected to rule on the merger as early as July 13.

As for possible negotiation of the sale of assets, Brasil Foods CEO José Antonio de Prado Fay met with CADE last week, on June 21. Fay told reporters in Brasilia after the meeting that he had said all that can be said under the circumstances and that there was "nothing new to add." The process remains under tight wraps. The stock is down 10.9% in the last four weeks ending June 28.

If CADE disapproves of the operation, it could impose restrictions such as asset sales. The Brazilian law does not discriminate exactly what should be sold or not. The decision is based solely on studies on the impact of the merger on the market. Under the law, CADE has the right not to rule on the case until the end of the trial. CADE officials declined to comment for now.

To help in their analysis in the days ahead, the council members have opinions issued by the government competitive watchdogs and by federal prosecutors.

The Sadia-Perdigão merger created a large, home grown food exporter, putting Brazil on par with major US names like Tyson and Purdue. Moreover, if the merger does fail, one has to wonder what will become of Sadia. Perdigão was essentially Sadia's white knight. Without it, the company was on the verge of bankruptcy after betting against the dollar just months before a major correction in the markets post-Lehman Bros.

Given the tone at CADE, it is likely that some of Brasil Foods assets will be sold to competitors like Tyson's Frangobras, Aurora, Globoaves and Cargill's Seara Alimentos. Others may go to the beef companies that are trying to diversify, mainly the publicly traded majors like Marfrig and JBS Friboi. That will give a number of these companies, some of them privately held, an boost in market share.

Sadia's chairman, Luiz Fernando Furlan, is a former Trade Minister under the ruling Workers' Party so it is a highly unlikely scenario to see the companies totally returned to their former selves, with Sadia floundering and looking for a buyer again.

Both companies were major food brands and exporters prior to the deal. And although their business will shrink and their share price correct after CADE makes its case, these names are brands that are as much a part of Brazil as Coca-Cola and Pepsi.