Big Emerging Market Mergers Create World-Scale Competitors

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Corporate Finance Focus

Two of Brazils biggest food companies, Perdiga o and Sadia. pian to merge in a stock-swap transaction that will create a multinational food company with annual sales of $10.6 billion. The new company. Brasil Foods, will chaDenge major United States-based food companies in global markets. It will have a market capitalization of about $5 billion, equal to that of Arkansas-based Tyson Foods, one ot the world's largest processors of chicken, pork and beef, and bigger than that of Hormel Foods, another large US meat producer.

Meanwhile, halfway around the world, India's leading mobile-phone operator. Bharti Airtel, has revived talks on its proposed merger with South Africa-based MTN that would create a $20 billion telecom services provider with 200 million customers in India, Africa and the Middle East.The combined company would be the third largest in the world, in terms of customers, after China Mobile andVodafbne. Bharti Airtel is 31%-owned by Singapore Telecommunications, which would remain a significant shareholder in the new company.

"We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse." libarti chairman and CEO Sunil Mittal said in a statement. "Both companies would stand to gain significant benefits from sharing each other's best practices in addition to savings emanating from enhanced scale."

Under the proposed scheme ot arrangement, Bharti would acquire a 49% stake in MTN, while the South Africa-based company and its shareholders would acquire a 36% interest in Bharti. The broader strategic objective is to achieve a full merger. Bharti plans to pay for its stake in MTN with cash and newly issued shares in the form of global depositary receipts.

"We see real power in a combination, and we wiil work hard to unleash it for all shareholders," Mittal says. "This opportunity also represents a first of its kind in developing an Indian-African initiative that would serve as a shining example of South-South cooperation."

Beginning of a Trend

Companies tro m rapidly developing countries that are now moving into international markets have become a powerful force in global business, according to the Boston Consulting Group. Established companies and industry leaders will soon be forced to confront these new global challengers, if they are not already, it says.

"The emergence ot global challengers is far from over; we are still at the beginning, not the end. of a trend," BCG said in a report released earlier this year. " Although volatile financial markets and other risks present obstacles to the challengers, they are learning quickly to manage these hurdles-and building stronger businesses in the process." it said.

In Brazil, che merger of Perdiga o and Sadia would create the world's biggest poultry company. Not only is Brazil the world's largest exporter of chicken, but it also accounts for one-third of the worlds beef exports. In May, China lifted sanitary restrictions on the import of Brazilian chicken. As a result. Perdigao was able to immediately ship 120 containers of chicken feet and wings to China from three of its plants.

Debt-laden Sadia posted the first loss in its 65-year history in 2008 after losing nearly $400 million in a wrongway bet on Brazil's currency, which slumped by 31% in the second half ot 2008. …