Brazil's Marfrig to buy Keystone Foods for $1.26 billion

SAO PAULO (Reuters) - Brazilian meat packer Marfrig Foods (MRFG3.SA) said it had reached an agreement to buy major U.S. distributor Keystone Foods for $1.26 billion.

Keystone, which says it pioneered the development of the boneless chicken nugget, serves more than 28,000 restaurants in 13 countries and last year had revenue of $6.4 billion from its food and distribution business.

Marfrig said in a statement after the Sao Paulo stock market closed on Monday that it would buy 100 percent of Keystone's shares.

"This acquisition raises Marfrig to an outstanding position as a supplier of the whole international chain of McDonald's (MCD.N), Campbell's (CPB.N), Subway, ConAgra (CAG.N), Yum Brands (YUM.N) and Chipotle (CMG.N)," Marfrig said in a statement.

It said that adding the resources and management of Keystone would enable it to expand its operations and better meet the opportunities for growth in the global food market.

Marfrig is the latest Brazilian food company to expand abroad, backed by strong domestic consumer demand and a fast-growing economy. Brazil's JBS (JBSS3.SA), the world's biggest food company, bought a 64 percent stake in bankrupt U.S. chicken producer Pilgrim's Pride (PPC.N) for $800 million last year.

To finance the purchase, Marfrig said it would issue a private subscription of debentures worth 2.5 billion reais ($1.38 billion) mandatorily convertible into shares with a term of five years. It said it hoped to complete the acquisition and its financing in the second half of 2010.

"The joining of these two global companies will benefit our clients and employees globally," Keystone Foods Chief Executive Officer Jerry Dean said in the statement.