Dos Santos the new beef baron
A NEW beef baron has stepped into the global spotlight – and he’s not quite like the guys who got all the attention before him.
Marcos Molina dos Santos, the founder and chairperson of Marfrig Global Foods SA in Brazil, is modest, media-shy and talks the language of butchers rather than bankers.
All the same, he is getting lots of attention as Marfrig breaks out to become the world’s second-largest beef producer with its first acquisition overseas in seven years.
Previously, that role was held by top producer JBS SA, which burst on to the stage more than a decade ago with a brash $20 billion (R262bn) acquisition spree. The partial funding of those deals by development bank BNDES became the subject of an investigation into alleged bribes paid by Joesley Batista, who with his brother, Wesley, ran JBS for a decade. The scandal forced them to step down from the company last year.
Marfrig is stepping in to pick up where JBS left off. It surprised investors by buying control of Kansas City-based National Beef Packing Company in a $969 million deal that will double Marfrig’s revenue.
Molina, 48, may not be the crack financial negotiator that Wesley Batista was – nor is he as charismatic as Joesley. Instead, industry watchers say he’s a relationship guy who makes a point of being surrounded by the right people.
“Big companies are frequently arrogant, but Marfrig never was,” said Marc Gautier, a managing director at JP Trinity Capital in Sao Paulo.
Molina “was always very open to listening to financial advisers. That has helped him a lot.”
To fund the National Beef deal, which was completed this week, Marfrig has agreed to divest Keystone Foods LLC, a US supplier of chicken nuggets to McDonald’s, for an estimated $3 billion or more. A sale of Keystone, which will likely be announced sometime in the next few weeks, and the plan to use the proceeds to also pay down debt won support from both analysts and investors. Marfrig’s stock has climbed 30 percent since plans for the deals were announced April 9.
Molina, who declined to comment for this story, was only 12 when he started working at his father’s butcher shop. He was not even old enough to drive when, in the mid-1980s, he founded the business that would later become Marfrig. He began by trading cattle organs and offal – parts that are typically discarded. Molina soon became the nation’s biggest seller of offal, then transitioned into premium cuts in the 1990s. It was not until 2000, however, that he bought his first stake in a slaughtering house.
While Molina also embarked on an ambitious acquisition spree that boosted sales 10-fold in five years, the bet did not pay off as well as it did for JBS. Marfrig has not posted an annual profit since 2012 and shares still trade at just half their 2007 initial public offering price. After spending about $4 billion to expand in pork, chicken and processed foods globally, Marfrig was forced to shed assets after being overwhelmed by debt.
The burden looked nearly insurmountable in 2015, when 75 percent of the company’s adjusted earnings was used for debt servicing. Molina stepped down in 2013 and handed control of day-to-day operations to Sergio Rial, the former chief financial officer of Cargill and the top executive at Santander in Brazil.
By last year, debt-servicing costs had declined to less than 50 percent of earnings after Marfrig sold UK chicken producer Moy Park and processed food maker Seara to JBS, and converted some debt into equity.
Like the Batistas, Molina was also targeted in a bribery probe related to loans from state-run bank Caixa Economica Federal in 2012. Last month, Molina agreed, without acknowledging guilt, to pay $26 million as indemnity in a deal that Marfrig says exempts it from any penalties. Molina could still face trial, prosecutors say.
JBS denied any wrongdoing, adding that transactions with BNDES were in accordance with legislation and market practices. Molina, who still controls Marfrig with a 34 percent stake owned by a family holding company, now has a second chance to finish what he started so many years ago – only this time he’s going back to his roots and focusing on a single commodity class: beef. – Bloomberg
He’s getting a lot of attention as Marfrig becomes the world’s second-largest beef producer.