Analysts claim Marfrig's financial leverage will remain elevated even after the recent sale of assets aimed at reducing debt load. ( Marfrig Global Foods and National Beef Packing Co. )
Investors in Brazilian meat packer Marfrig Global Foods SA were described as “fuming” over the fine print in a $969 million deal that purchased 51% of National Beef Packing Co.
According to a Bloomberg report, that fine print gives owners of the remaining 49% of National Beef the right to demand Marfrig buy their shares at “fair value” after a lock-up that ends five years from now. The potential liability never appeared in any of Marfrig’s public filings and was only brought to light earlier this week by S&P Global Ratings. It was subsequently confirmed by Marfrig on Thursday.
Originally, Marfrig investors were happy with the National Beef purchase news and the fact the company aimed to substantially cut its debt levels. The first step in reducing that debt came last week as Marfrig announced it was selling chicken-nugget maker Keystone Foods LLC to Tyson Foods Inc. for $2.5 billion.
Now, the revelation adds to concerns that Marfrig’s leverage will remain elevated even after the Keystone sale. Bloomberg reported Marfrig managers have committed to cutting net debt to as low as 2.2 times earnings before interest, taxes, depreciation and amortization by year-end, but S&P sees the ratio closer to 4 times in 2018 and 2019. The National Beef put option combined with other items add about 5 billion reais to Marfrig’s liabilities, S&P said in a report.
The case adds to a track record of governance issues and lack of transparency that has undermined investors’ confidence in Brazilian meat companies, Soummo Mukherjee, an analyst at Mizuho Securities USA in New York, told Bloomberg. “Creditors typically apply a discount to these bonds.”
According to Marfrig’s press office, the National Beef deal assures Marfrig’s capital structure will remain intact until at least 2023, and minority shareholders will be able to sell no more than a third of their shares a year after that. Marfrig also said 15% of National Beef is owned by ranchers with long-term supply contracts with the meatpacker, and they chose not to sell their interest during the Marfrig transaction.
Marfrig never intended to hide any information from investors, according to Chief Financial Officer Jose Eduardo Miron. The put terms had been protected by confidentiality terms until the biggest minority shareholder, Leucadia National Corp., was compelled to disclose it in a little-noticed filing in June, Miron said.
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Research from the United Kingdom published in 2015 suggests that taking a hot bath can help improve running performance in hot weather, but that’s if you take the bath after exercising, not before. The study, from the University of Bangor, looked at hot baths as an alternative to other methods of acclimatizing to heat for competitive athletes. Exercising in high temperatures carries the risk of heat exhaustion, and, more seriously, heat stroke, which can be deadly. In addition, sweating to cool down in the heat puts an extra strain on the cardiovascular system and increases fatigue.
For athletes, acclimatizing to heat typically requires training for 10 to 14 days in hot weather, which can result in a drop in body temperature and an increase in sweat rate and blood plasma volume, all of which improve the ability to compete effectively. For British athletes, this may require relocating to a hot country or training in an environmental chamber simulating a hot environment, options that aren’t widely available.
Researcher Neil Walsh, a professor in the Bangor University School of Sport, Health and Exercise Sciences, explains that the hot bath recommendation stems from his own experience as a competitive road cyclist; he always took one after a long training ride.
For the Bangor study, Professor Walsh and his team recruited 17 volunteers to run for 40 minutes on a treadmill for 6 consecutive days. After each session, 10 of the volunteers took baths at 104 degrees Fahrenheit while seven others took baths at 93 degrees Fahrenheit. At first, not all the runners assigned to the hotter baths were able to remain in 104-degree water for 40 minutes, but by the fifth day, nine of them managed to stay submerged up to their necks for that long. Prof. Walsh has since said that as little as 20 minutes in the tub may be all you need, but that remains to be confirmed by further research.
All told, results of the study showed that taking a hot bath after exercise reduced both resting and exercising body temperature and improved running performance in the heat by 4.9 percent. There were no such improvements when running at cooler temperatures.
If you’re not a competitive athlete and typically avoid outdoor exercise during very hot weather, I don’t know that you need to think about acclimatizing yourself to higher-than-normal temperatures. Aside from these concerns, a hot bath after exercise – not necessarily as hot as in this study – can help ease body aches and promote relaxation.
Mike Zurawlew et al, “Post-exercise hot water immersion induces heat acclimation and improves endurance exercise performance in the heat.” Scandinavian Journal of Medical Science and Sports, December 15, 2015, DOI: 10.1111/sms.12638
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