Latache asset manager takes case to antitrust watchdog, demands brand divestitures.
Roughly 90% of BRF’s minority shareholders have already cast their votes ahead of the shareholder meeting scheduled for Tuesday (5), and the majority favor the company’s merger into Marfrig, its controlling shareholder. Although the minority vote is not decisive—since Marfrig, led by businessman Marcos Molina, is entitled to vote — support from non-controlling investors carries symbolic weight, especially after the Securities and Exchange Commission of Brazil (CVM) suspended two prior shareholder meetings at the request of minority investors.
The combination of the two Brazilian meat processing companies will form a new entity, MBRF. Together, Marfrig and BRF reported R$152 billion in net revenue over the past 12 months.
With pension fund Previ and a member of the Fontana family — former owners of Sadia — dropping their objections to the share exchange ratio and some investors selling their shares, asset manager Latache now stands alone among the minority shareholders pursuing regulatory action against the transaction. Valor has learned that Latache has submitted another request related to the deal to the CVM. Since João Pedro Nascimento stepped down from the CVM presidency, the regulator has been operating with only three of its five board members.
Over the weekend, as reported by Valor’s business website Pipeline, a detailed breakdown of the advance votes was released: 549 million shares had been voted early, representing 34% of total share capital and 90% of the minority shareholders’ stake. Among these votes, 43.8% were in favor of the merger, 17.4% were against, and the remainder abstained. Of the remaining 10% of minority shareholders, fewer than 1% registered to vote at Tuesday’s (5) meeting, according to Pipeline.
Some minority shareholders were surprised by the transaction terms announced on May 15, which grant 0.8521 Marfrig shares for each BRF share, and include the distribution of R$3.5 billion in dividends by BRF and R$2.5 billion by Marfrig (amounts still subject to adjustments depending on withdrawal rights). The exchange ratio initially appeared balanced based on share prices on the day before the announcement.
That was not the case for Latache. Valor has learned that the asset manager purchased nearly 4 million BRF shares—around R$80 million worth—after the notice of material fact was disclosed. Latache thus entered the deal fully aware of the terms, reportedly intending to litigate in hopes of profiting from a potential revision of the exchange ratio. According to sources familiar with the strategy, such practices are not uncommon among special-situation funds, which is how Latache positions itself.
However, Latache’s involvement goes further. A fund managed by the firm, acting as a shareholder of both BRF and Marfrig, joined forces last week with rival Minerva to file a complaint with Brazil’s antitrust authority (CADE) opposing the merger. The regulator has now moved the case to its standard review procedure—longer and more rigorous—due to the cross-shareholding involvement of the Saudi fund Salic, which holds stakes in both Minerva and BRF.
Latache’s fund argues that the combined portfolio of Marfrig and BRF would be too powerful and is calling for the sale of certain brands to smaller competitors. Market observers say it is unprecedented for a shareholder to challenge the market dominance of its own company before the antitrust regulator, and warn that the move could raise legal questions.
Latache is also at the center of a recent regulatory controversy involving its founder Renato Azevedo. Though widely known as the firm’s main figure, Mr. Azevedo stepped down as CEO on June 20 after the Brazilian financial markets association ANBIMA denied his request for a waiver from the certification required for the role.
Mr. Azevedo submitted proof of international asset management experience via his firm Muckroe Enterprises Inc., but ANBIMA concluded that he had primarily managed personal rather than third-party assets, and even if that were not the case, he would not meet the seven-year minimum tenure requirement. Mr. Azevedo took the matter to court, but his request was denied by a first-instance judge on May 26 and is currently under appeal.
At the CVM, Latache remains in good standing, with Marcel Cecchi listed as the responsible director. Mr. Azevedo also holds a valid license as a portfolio manager in his individual capacity.
Asked by Valor to comment on the BRF case and the ANBIMA dispute, the firm issued the following statement:
“Marcel Cecchi, managing director, partner, and portfolio manager at Latache, stated that the firm will not comment.”
The original CVM rulings suspending BRF shareholder meetings were based primarily on complaints about a lack of transparency regarding how independent committees determined the 0.8521 exchange ratio. Although documents were submitted initially, key sections were redacted.
As of July 15, Marfrig and BRF have released the full minutes of all committee meetings, along with the valuation reports and financial projections used in the negotiation. J.P. Morgan advised Marfrig, while Citi represented BRF’s independent committee.
According to the filings, both sides used different valuation methods, with discounted cash flow prevailing in the end. The two companies also negotiated on key assumptions. Marfrig’s initial proposal would have given Marcos Molina a 51% stake in the combined company.
BRF’s counterproposal would have cut his stake to 36%. The final agreement was settled at 41.5%—before Mr. Molina’s recent share purchases, which are expected to bring his stake close to 50% in the new entity.
Source: Valor International
