July 12, 2019 / 3:51 PM / 7 days ago

BRF, Marfrig shares mixed after Brazil meat merger talks called off

SAO PAULO, July 12 (Reuters) - Shares in Brazilian meat-packers BRF SA and Marfrig Global Foods opened higher on Friday after the companies called off talks on a potential merger but later trimmed gains.

BRF’s shares rose by almost 4% in early trading in Sao Paulo but later went negative as investors digested the news. Marfrig’s shares rose 2.2% at one point in the session but later paired gains to 0.7%.

In a note to clients, BTG analysts said the premature end of the talks was not a surprise, given uncertainties surrounding the proposed merger including how to integrate management and the best possible composition of the board of directors.

It was also unclear how much in cost savings the combined entity would have seen, BTG said.

Late on Thursday, the two companies said in securities filings they had called off the talks because they could not agree on the governance structure of the potentially merged company.

Sources told Reuters members of the founding families of both companies disagreed on the ownership structure of the potential new entity, which would have been the world’s fourth largest meat-packer after JBS SA, Tyson Foods and China’s WH Group Ltd.

The deal’s collapse leaves BRF, which is trying to restructure under a team chosen by turnaround expert Pedro Parente, under renewed pressure to cut debt and boost revenue.

Analysts at brokerage XP said in a note that they were maintaining a “neutral” rating on the stock while keeping a “buy” on Marfrig.

BRF’s cash generation could be helped by an outbreak of deadly pig disease in China, the analysts said, “but we prefer to position ourselves for this trend via JBS, which has already been showing results.”

JBS, which has been recovering from a corruption scandal, has also been vocal about a potential U.S. IPO “which would unlock additional value,” XP said. (Reporting by Paula Laier and Writing by Ana Mano Editing by Alistair Bell)

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