Contents

SADIA S.A. A BRAZILIAN FOOD PRODUCER ................................................................................................ 2 Introduction: ............................................................................................................................................. 2 Company Profile:....................................................................................................................................... 3 Corporate Structure: ................................................................................................................................. 3 Acquisitions and Investments: .................................................................................................................. 4 Financial Position: ..................................................................................................................................... 5 Currency Derivative Contract:................................................................................................................... 8 Loss in the Derivative Market: .................................................................................................................. 8 Consequences: .......................................................................................................................................... 8 Allegations against Sadia: ......................................................................................................................... 9 Substantive Allegations:............................................................................................................................ 9

SADIA S.A. A BRAZILIAN FOOD PRODUCER

Introduction:
Sadia S.A was created in Concordia, Santa Catharina, Brazil. Primarily it is one of the main Brazilian food producers. The most important thing is it ranked among the worlds leading producers of frozen foods and exports meat products around the world. According to the data provided by its official website in reference to 2008 data, it had 20 industrial plants with maximum production of 2.3 million tons of food including chicken, turkey, pork and beef, as well as pasta, margarines, desserts, and other products. There are at least 70,000 distributors distributing the food produced by the company in Brazil and its earnings increase mainly from exporting to almost 100 countries in the world. The company had to face a great loss in the derivatives market during 2008. In 2009 the company merged with the major competitor Perdigao, which transformed its name to BRF - Brazil Foods S.A.

Company Profile:
The word Sadia in Portuguese means healthy, which seems appropriate for a Brazilian producer, settled in the aisles of chilled and frozen foods. The company produces food which includes 1.3 million tons of protein which include processed foods like frankfurters and sausages, as well as convenience foods (ready to cook food) including hamburger patties, pizzas and etc. More than that the other products include margarine and pasta.

Corporate Structure:
The corporate structure of the company Sadia S.A is shown below and it is necessary to note that the company has its own operating subsidiaries.

Acquisitions and Investments:

Up till now the Company has undergone several changes which include acquisitions and diversification i.e. their entry into new businesses. Due to this the Company increased its share in the market of chicken and pork products and diversifies by entering into margarine, beef and milk markets. Along with it the company restructured its corporation through reorganization and thus reducing costs of operation, tax and financing, and other activities i.e. operational activities. The details of the acquisitions and investments are as under:

Sino dos Alpes

This plant was acquired in 30th March, 2007. The subsidiary is basically situated in the State of Rio Grande do Sul, a subsidiary of Grandi Salumifici Italiani (GSI), a major competitor in the Italian meat industry. This particular acquisition was worth R$0.4 million. It manufactures premium quality items like bologna sausage, frankfurters and sausage made from selected meats. The two popular brand names there Senfter and Sinosul are prepared from special recipes with the flavor of homemade seasoning typical of the state of Rio Grande do Sul. Due to this merger, Perdigao intends to centralize the production of small-scale lines for specific market niches at the new unit.

Pet Food
In April 2007, the Company initiated its business in the new market i.e. in pet foods launching Balance and Supper brands. These products were basically created for the pet food market with an aim towards growth potential. The investment totaled approximately R$4 million in the assembly of a modern dog food production line in the animal feed plant at Francisco Beltrao in the State of Parana. The production was simply adjusted according to the demand of market.

Plusfood
This Dutch Company was acquired on 2nd January, 2008. This acquisition was woth R$43.0 million. It manufactures poultry, beef and convenience food products. Most importantly, it has 2 important brands in the European market: Fribo for hamburgers and Friki for poultry products. The primary items in its product mix are chicken nuggets and other breaded products, boiled and grilled chicken and other hamburger varieties. Its export markets for its products are the United Kingdom, Italy, the Netherlands, Spain, Germany and France. This acquisition was done in order to boost the European sales. Their aim was also to develop new products for European customers and enhance the marketing and distribution services.

Valore
This particular acquisition occurred on June 19, 2007 and the investment was of approximately R$110.0 million. This plant is situated in the State of Mato Grosso. The acquisition basically occurred with an aim of enhancing the beef operations by 2011 as a part of their strategic plan. This acquisition also focused on several concerns like animal health and food safety standards in accordance to environmental protection requirements.

Paraso Agroindustrial
This acquisition took place on 31st July, 2007, which is located in Jatai in the State of Goias. The main business of this unit to act as a poultry slaughtering unit and an animal feed plant. The company was acquired from the Gale group at a price of approximately R$28.7 million. On August 1, 2007, this company was merged into Perdigao Agroindustrial S.A.

Unilever Margarine Business

Unilevers Margarine business was acquired on 1st Aug, 2007. It was acquired at a price of R$74.8 million with a goodwill of R$65.8 million. Sadia S.A also formed a joint venture with Unilever to identify business opportunities like managing branded products Becel and Becel Proactive. This purpose of this acquisition was to focus on the health conscious consumer segment in Brazil. The joint venture was formed to enhance the marketing, selling and distribution of Unilever brands through their advanced technology and innovation.

Financial Position:
The financial position can be determined by the following income statements and balance sheets which were basically not exposed in 2008 when the loss in derivative market occurred.

Currency Derivative Contract:

Sadia entered into currency derivative contracts to hedge against the US dollar exposure. The amounts of these contracts were characterized as nominal. The contract also violated the company policy in that they were far larger than necessary. The contracts covered forward exposure for 12 months when the companys policy contained the covering of forward exposure for 6 months worth of coverage.

Loss in the Derivative Market:

On 25th September, 2008, the companys shareholders were deeply shocked and saddened by the news which stated the loss it had incurred in the derivatives market. The loss was due to its involvement in the currency derivative contracts hedging against US dollars exposure. The loss was of R$760 million (U.S. $410 million). It was also alleged that the loss was however greater than their earnings in 2008. It was due to this that the companys Chief Financial Officer was fired.

Consequences:
Due to this particular loss, the companys share fell $5.77 per share to $9.50 per share. It continued to fall in the marketplace, declining an additional $1.91 per share, as the news of this particular loss got leaked in the entire marketplace. On 6th October, 2008, the chairman and vice chairman resigned from their respective jobs. Due to this, the price per share declined to $7.75 and $6.75 on 6th and 7th October, 2008 respectively.

Allegations against Sadia:

The purchasers of Sadias American Depository Receipts alleged that the currency derivative contract was unnecessary and was against the companys policy i.e. clear violation of companys hedging policy. Other allegations included: 1. 2. 3. 4. 5. The companys exposure to currency contracts was not nominal but large and speculative. The company lacked appropriate financial control. The company lacked sufficient internal control. The Financial statements were false. The companys statements about it financial position and future business prospects were misleading.

All these misleading statement were issued to SEC by Sadia which are as under while the true facts are mentioned above.

Substantive Allegations:
During the class period, the company issued a press release and filed a form 6-K with SEC. Below is the snapshot of that release:

Gilberto Tomazoni CEO, Managing Director

On 30th April, 2008, the company once again created a misleading statement and filed it to SEC on form 6-K which included the following snapshot:

On 30th July, 2008, the company filed to SEC:

Gilberto Tomazoni CEO

On 25th September, 2008, the company filed once again with SEC on the form 6-K which stated:

On 26th September, 2008, an article written by Associated Press notified that Sadia had incurred a big loss in the derivative market. But Sadias officials reported that they can cover the loss having short term line of credit. The fluctuations and volatility in the exchange market led to the loss. Analysts were of the view that $406 million loss was more than the companys earnings in 2008 which led to the firing of Chief Financial Officer.

Sources:
http://en.wikipedia.org http://www.brasilfoods.com/ri/siteri/web/arquivos http://ktmc.com/ http://www.bestgore.com/tag/drugs/ http://www.fim-africa.com/apps/blog/show/30582595-fim-africa-stand-2013-amid-show http://www.slc.co.uk/links.aspx http://seekingalpha.com/article/1448461-chevrons-5-year-dividend-potential http://articles.economictimes.indiatimes.com/2013-01-25/news/36548186_1_sarang-wadhawan-stakesale-hdil