For Bank of America, the conditions imposed by Cade in the agreement should not have an impact on Minerva and Marfri (Image: iStock.com/Dragos Cojocari)
O Bank of America (BofA) has the recommendation of buy to Marfrig (MRFG3) and target price of R$21.50 (upside potential of 55.91%), while recommending sale to Minerva (BEEF3) and target price of R$7.10 (upside potential of 7.90%), after the approval of Cade (Administrative Council for Economic Defense) for the R$7.5 billion agreement, involving the sale of 16 plants and a distribution center.
“In our view, Marfrig is trading at a steep discount of 34% to our valuation of the sum of the parts and the cash inflow from the sale of assets to Minerva, which should reach ~R$5.5 – 6 billion, together with the dividends from BRF, should help to drive a deleveraging of the holding company and unlock value”, see Isabella Simonato and Julia Zaniolo
As for Minerva, although the approval of the agreement is positive, the bank's analysts see that the acquisition of the assets took place with a valuation premium and increased leverage in a higher interest rate scenario in Brazil is a risk.
“In addition, there is risk regarding the consolidation of assets and the working capital needed to grow the business. We estimate a Net Debt/EBITDA for Minerva of 3.6x by the end of 2025.”
Will conditions imposed by Cade impact the Marfrig/Minerva operation?
For BofA, the conditions imposed by Cade in the agreement — such as the sale of a slaughterhouse in Goiás and the suspension of an agreement that limited the expansion of Marfrig's processing plant in Várzea Grande (Mato Grosso) — are unlikely to have a significant impact on the transaction.
Regarding the plant in Goiás, it has been inoperative since 2010 and Minerva had no plans to reopen it. Cade has determined that Minerva must sell the plant within six months of the closing of the deal, although it may request a 6-month extension of the deadline.
“If the sale is not completed, the plant will have to be auctioned at a minimum price set by a third party. If Minerva is not successful in disposing of the plant by sale or auction, CADE will consider that Minerva has complied with the conditions and no further action will be necessary,” they argue.