“History always repeats itself, at least twice.” The phrase by the philosopher Georg Hegel fits Minerva Foods — the largest beef exporter in South America— like a glove. After suffering a brutal devaluation following a merger or acquisition with Marfrig for R$7.5 billion and seeing its debt skyrocket, the Vilela de Queiroz–owned company will turn to its shareholders to fix its balance sheet, according to TheAgriBiz. In a material fact announcement, the company reported a private capital increase of R$2.0 billion (about US$338 million), an amount capable of balancing the company’s capital structure by reducing leverage (the ratio between net debt and Ebitda), which reached five times in December.
This strategy is not new. In 2018, less than a year after acquiring JBS’s packing plants in the Mercosur region for US$300 million, Minerva carried out a private capital increase of R$1.1 billion. At that time, the merger seemed difficult to digest solely through the synergies from the integration, just as it does now with the packing plants bought from Marfrig.
In an interview with Brazil Journal, Minerva’s CFO Edison Ticle stated that the financial cost in Brazil is so high—with the Selic rate heading toward 15%—that the operation could generate value for shareholders, even considering the substantial discount on the shares in the capital increase. The bet is that, with less debt (thus reducing the weight of interest on the balance sheet), Minerva could save more than R$300 million in financial expenses, increasing the company’s profit.
To achieve this, however, the company needs to convince minority shareholders to participate in the capital increase. With the share price in the private capital increase set at R$5.17 —representing a 20% discount on the share price— minority shareholders will have an incentive to take part. As happened in 2018, Minerva will give shareholders participating in the private capital increase a purchase option, which could bring the operation to R$3 billion. With this purchase option (commonly known as a warrant), shareholders will have the right to buy new company shares within three years, at the same price of R$5.17. The logic behind this incentive is simple: as Minerva’s shares tend to recover—reflecting a more solid balance sheet—exercising the options would become highly attractive. Anyone who participated in the private capital increase seven years ago has no regrets.
The question is how large the minority shareholders will be. For now, half of the R$2.0 billion operation is guaranteed by the controlling shareholders. VDQ, a holding of the Vilela de Queiroz family, has committed R$700 million. Salic, an investment firm owned by Saudi Arabia’s sovereign wealth fund, will invest R$300 million. The transaction will reorganize Minerva’s corporate structure, placing the Vilela de Queiroz vehicle once again as the company’s largest shareholder, with just over 25%. VDQ currently holds 31% of Minerva, but its proportionally smaller contribution in the operation could reduce its stake to less than 25% if the company’s minority shareholders also decide to participate in the capital increase.
