Dos San­tos the new beef baron

The Sunday Independent - - Features - Ger­son Fre­itas jn

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.

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