RIO DE JANEIRO - The 1994 takeover of Brazil's second-largest poultry producer by a group of state-owned-company pension funds has become the most celebrated example of how corporate governance and professional management can turn around a financially ailing, family-run business.
A consortium of eight pension funds - led by the Caixa de Previdencia dos Funcionarios do Banco do Brasil, or Previ, the pension fund of the state-controlled Banco do Brasil - bought Perdigao for $150 million in 1994. Perdigao's founder, Saul Brandalise, had died two years earlier, leaving his sons with a highly indebted firm and without the managerial know-how to run it.
Perdigao's new owners made administrative expertise a priority, because no group of Brazilian pension funds had ever made the decision to jointly buy control of a big company. Executives in the consortium decided to lay down some administrative ground rules for the professionals they hand-picked to restructure the business.
Those corporate governance rules included: concentrate on the "core" business rather than diversifying outside the sector; boost the ability to compete through economies of scale, synergistic acquisitions and investments; and reduce short-term debt to avoid punishing interest rates.
"The Previ-led pension fund consortium is responsible for setting down the management guidelines that have turned this company around," said Perdigao President Nildemar Secches. "Without such corporate governance, Perdigao - had it survived - wouldn't bear the faintest resemblance to the company it is today."
The Perdigao management team, lead by Mr. Secches, began to carry out those guidelines by selling off the firm's hotels, pet food stores, fertilizer plants, timber and cargo transport firms. Through this divestment, Perdigao reduced itself from three listed companies to one. And with three firms no longer independently making decisions that might hurt the performance of the other two, the constant conflicts among major shareholders ended.
This consolidation, which channeled investments into the core business - poultry and pork production - increased the firm's animal-protein production capacity by 55% since 1994. The pension funds also began to invest through 2003 a total of $570 million in Perdigao, a capital injection (through 2003) that has, along with the consolidation, helped boost Perdigao's share of the industrial meat market to 20% this year from 16% in 1994, and its share of the frozen meat market to 25.6% from 8.8%. The entire $570 million investment is expected to increase Perdigao's capacity by an additional 50% by 2003.
"With globalization, all Brazilian industrial sectors are consolidating to use economy-of-scale gains to better compete," said Mr. Secches. "This is particularly true in our sector, which is why we wasted no time in expanding our core business."
Perdigao administrators have boosted exports (which now account for 25% of the firm's output) to help provide a market for the company's increased capacity. The company also has created synergistic, core business spin-off operations. Perdigao recently began selling frozen vegetables (which it imports) because it could use existing freezing facilities.
The new administrators also began reducing the firm's short-term debt from $325 million in June 1994, when the firm was sold, to $205 million as of Sept. 30, 1997.
This debt reduction, along with increased production capacity and growing market share explains why Perdigao, for the first nine months of 1997, posted $17.7 million in profits (on $681 million in sales), well above the $9.8 million in profits it posted for all of 1996.
Perdigao production and financial overhauls were complemented with an administrative restructuring that redefined and consolidated job categories, but didn't involve layoffs. In fact, by expanding core business operations, the number of Perdigao employees has risen to 14,700 from 12,600 in 1994.
The entire process resulted in Perdigao's market value reaching $440 million, from $120 million in mid-1994. Savvy foreign investors, anticipating such a turnaround, now hold 15.3% of Perdigao's outstanding shares, compared to well less than 1% when the company was sold.
Perdigao's Mr. Secches said the company's turnaround doesn't mean that all Brazilian family-owned firms would be better off were they administered by professional outsiders.
"In some family businesses, problems arise when power is transferred, often suddenly, from one generation to another, and where the descendants don't have the same expertise as the founder," he said. "In Brazil there still exist well-run Brazilian family businesses and poorly run firms, administered by owner-picked professionals. Perdigao isn't, however, one of them."
