Parmalat is close to winning the auction for the Brasil
Foods dairy business in its second announcement within two weeks over an acquisition
in the tough Brazilian market.
Italian-based Parmalat, controlled since 2011 by France's
Lactalis, said it had signed a "binding memorandum of understanding" over
purchasing the Brasil Foods assets for R$1.8bn ($805m, E610m), on a debt and cash-free
The deal comes six months after Brasil Foods announced it
was selling its dairy division, with the auction reportedly attracting interest
from 14 suitors, including France's Danone, Swiss-based Nestle and Grupo Lala,
Mexico's top milk processor.
For Parmalat, the purchase of Brasil Foods assets including
11 dairy plants and a host of brands follows the announcement last month that a
R$250m ($110m, E83m) offer for the UHT milk and cheese operations of Lacteos
deo Brasil, which filed for bankruptcy protection last year.
Indeed, the Brazilian market, while fast growing, has proved
tough as rivals compete for milk, leaving processors struggling to pass on milk
prices which, as in many other countries, proved strong last year, rising last October
to a record R$1.12 per litre.
This year, margins have come under pressure by a move from
Brazil to generating a milk surplus at a time when markets are amply supplied,
after ramp-ups in production in the likes of Europe and New Zealand.
Brazil in February registered a net surplus in its dairy
balance for the first time in five years, according to Rabobank, yet milk prices
have stabilised at around R$1.00 per litre according to research institute Cepea,
showing a smaller decline than in many other countries.
The pressures have, for instance, left shares in Vigor, the
dairy group spun off from JBS in 2012, down one-third so far this year.
The Brasil Foods dairy division saw high milk prices lift
its costs by 19.3% last year. However, sales rose by a more modest 3.5% to
R$2.8bn, as an attempt to pass on the higher costs, through an increase of 24%
in prices, prompted a 15.4% drop in volumes.
Dairy was also the one market in which Brasil Foods has a
relatively small market share, of 10.8%, compared with more than 50% in many of
its main food markets.
The group ranks third in Brazilian dairy, behind Nestle and Danone,
although it is believed that Parmalat, which already had some assets in the
country, may now take second place.
Last year, Parmalat bought Brazilian gourmet cheese maker
Balkis for $30m.
Parmalat shares stood 0.1% lower at E2.524 in morning deals