The Work

May 19, 2009 7:05 PM

Get Those Passports Ready: Brazil's Got The Deals

Posted by Brian Baxter

UPDATE: 3:38 p.m., May 21. Cravath, Swaine & Moore served as U.S. counsel to Sadia on the transaction below.

While transactional work may be down in the U.S., a multibillion dollar merger between food companies in Brazil could mean more opportunities for M&A lawyers abroad.

On Tuesday, São Paulo-based poultry and pork processor Perdigão and rival São Paulo-based meat producer Sadia announced a stock swap in which Perdigão would acquire Sadia to create a new company called BRF Brasil Foods. Perdigão will retain a 68 percent interest in the new entity and Sadia a 32 percent stake.

Bloomberg reports that the deal will make BRF Brasil Foods the world's largest poultry company by market value and third-largest meat processor in the Americas behind Springdale, Ark.-based Tyson Foods and JBS in Brazil.

The merger was primarily handled by Brazil-based firms. Perdigão was advised by Bocater, Camargo, Costa e Silva Advogados and a team consisting of name partner Francisco Costa e Silva and associates Carlos Augusto, Lucimara Lima, and Mauricio Rossi. (The firm has offices in several cities in Brazil.) Perdigão also relied on local antitrust counsel Paulo de Tarso Ribeiro, a name partner at Fontes, Tarso Ribeiro Advogados in Rio de Janeiro.

Sadia was advised by Barbosa, Müssnich & Aragão (BM&A) partners Paulo Cezar Aragão, Monique Mavignier de Lima, Luiz Antonio de Sampaio Campos, and Barbara Rosenberg, and associates Daniela Soares, Priscila Jane dos Santos, Mariane Pereira, José Carlos da Matta Berardo, and Marcos Antonio Exposto Jr. Sadia also relied on in-house counsel José Romeu Amaral. (BM&A has offices in Brasília, Rio De Janeiro, Sao Paulo, and Belo Horizonte.)

The deal, and others in Brazil, are worth following, says Marcello Hallake, an M&A partner with Thompson & Knight in New York. He for one is paying attention.

"There is a wave of consolidation going on in Brazil right now where the government is encouraging the creation of large Brazilian companies," says Hallake, who was not involved in the Perdigão-Sadia transaction. 

Hallake, a Brazilian with a long track record of Latin American deals, says the Brazilian Development Bank (BNDES) is providing financing for many of these deals. He says the idea is to create large companies so they can become bigger players in the global marketplace.

Although Brazil has felt the effects of the global financial crisis, Hallake says the BRIC country is doing better than most, adding that more wheeling and dealing has occurred in recent months than in the U.S.

Thompson & Knight has Brazilian offices in Rio de Janeiro, São Paulo, and Vitória through a May 2003 alliance it forged with Brazil's Tauil & Chequer. The firm's local alliance has already paid off: it's Brazilian (and Portuguese) connections helped land it a lead advisory role on a $7 billion Angolan gas deal last fall.

Although Brazilian bar rules prevent foreign lawyers from practicing local law, Thompson & Knight's affiliation with Tauil & Chequer allows it to sidestep that restriction. Hallake says the firm has 50 lawyers in-country that collaborate with counsel in its Texas and New York offices.

Despite the opportunities, Hallake is quick to point out that the Brazilian economy hasn't been without its challenges.

"There was a huge wave of IPOs in Brazil in 2007, which led many U.S. law firms to open up in São Paulo," he says. "But the capital markets have slowed down significantly and a lot of that work has dried up."

The National Law Journal reported last year that nearly a half dozen firms--such as Shearman & Sterling, Simpson Thacher & Bartlett, Proskauer Rose, Mayer Brown, Skadden, Arps, Slate, Meagher & Flom, Allen & Overy, and Squire, Sanders & Dempsey--have opened Brazilian offices. For some firms it was their first office in Latin America.

Fortunately for Thompson & Knight, more M&A and project development work in the energy and telecom sectors has helped offset the market downturn in other areas, Hallake says. Worsening economic conditions have even pushed some deals along. The Perdigão-Sadia merger agreement was forged after Sadia posted the first annual loss in its 65-year history, Bloomberg reports.

Going forward, Hallake says he's particularly interested in the antitrust aspects of the merger between Perdigão and Sadia to create BRF Brasil Foods.

"This deal will need to be approved by Brazil's antitrust authority," Hallake says. "And given that its intention is to create a company that will be dominant in many markets, there are some questions as to whether it will be approved and under what conditions."

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