Regulatory Risks in Emerging Market Mergers: The Marfrig-BRF Case Study

The proposed merger between Brazil's Marfrig Global Foods and BRF, the country's largest meat producers, has become a stark example of the regulatory minefields lurking in emerging market M&A deals. While the transaction ultimately proceeded, its path through Brazil's antitrust regulator, CADE, revealed how even seemingly straightforward consolidations can face abrupt delays—or worse—when geopolitical, ownership, and competitive dynamics collide. For investors, this case underscores a critical lesson: in markets like Brazil, regulatory risk is not just a checkbox but a core pillar of due diligence.

The Marfrig-BRF Deal: A Regulatory Tightrope

The merger aimed to create MBRF Global Foods, a $152 billion conglomerate combining Marfrig's beef dominance with BRF's poultry and pork operations. By June 2025, the deal appeared on track: CADE's technical team had recommended unconditional approval. But within days, the process hit a snag when competitor Minerva Foods intervened, arguing the merger risked stifling competition.

Minerva's objection hinged on a unique structural issue: Saudi-owned SALIC held minority stakes in both BRF and Marfrig and in Minerva itself. This overlap, Minerva claimed, created a “Trojan horse” scenario where SALIC could manipulate pricing or supply chains across all three companies. CADE's president acknowledged the concern, extending the review to analyze market impacts, particularly in fresh beef and processed meat.

While the merger ultimately proceeded—pending no appeals—the delay highlighted a broader truth: in emerging markets, even minor regulatory hurdles can amplify risks for investors.

Why Regulatory Risks Matter in Emerging Markets

Emerging markets like Brazil are fertile ground for M&A activity, offering scale and growth at a fraction of developed market valuations. But as the Marfrig-BRF case shows, the regulatory frameworks are often less predictable. Key factors at play:

1. Third-Party Interventions: Unlike in the U.S. or EU, where antitrust reviews typically involve direct stakeholders, Brazilian regulators like CADE grant third-party “interested parties” (interessadas) formal roles. This opens the door for competitors or even distant industry players to challenge deals, as Minerva did here.
2. Geopolitical Crosscurrents: SALIC's Saudi ownership added a layer of foreign investment scrutiny. While not directly blocked, such foreign ties can invite prolonged reviews, especially in strategic industries like food production.
3. Data-Driven Scrutiny: CADE's request for granular product-level sales data (e.g., burger patties vs. kibbeh) signals regulators' growing focus on micro-market overlaps—a trend that raises costs and timelines for merging firms.

Investment Implications: Navigating the Risks

For investors, the Marfrig-BRF saga offers both caution and opportunity:

• Due Diligence Must Go Deeper: Standard antitrust reviews are insufficient. Investors should map out minority shareholders, cross-ownership structures, and the political clout of foreign investors. In this case, SALIC's role could have been flagged as a red flag early on.
• Timing is Everything: Emerging market regulators often lack the resources or transparency of their developed-world counterparts. Deals can face unpredictable delays. Investors should assess the “regulatory runway”—how much time a company has to address objections—and factor that into valuation.
• Sector Selection Matters: Industries with high market concentration (e.g., meatpacking, telecoms) are ripe for antitrust scrutiny. Investors might favor sectors with fragmented players or those less sensitive to buyer power dynamics.

Final Take: Proceed, But Proceed with Eyes Wide Open

The Marfrig-BRF merger's success—despite its turbulence—shows that emerging market M&A can still deliver returns. However, the deal's near-miss with regulatory roadblocks serves as a reminder: in these markets, the path to profit is rarely straightforward.

Investors should prioritize companies with:
- Transparent ownership structures,
- Strong local partnerships to navigate bureaucracy, and
- Deal teams experienced in managing third-party interventions.

In the end, the true risk isn't the regulatory process itself—it's the failure to anticipate it.

Avi Salzman
June 6, 2025