CFO Who Laid Low Brazil's Sadia: Blame It On Lehman
The former chief financial officer of Brazilian food giant Sadia
SA (SDA) went from wunderkind to plaintiff in less than a year.
But it was all Lehman Brothers fault. They went bust at the
wrong time, resulting in a stronger dollar worldwide just when
Sadia was incredibly short.
On April 6, Sadia's controlling shareholders unanimously agreed
to hold 39 year-old ex-CFO Adriano Lima Ferreira legally
responsible for more that 600 million Brazilian reals ($270.2
million) in losses from dollar futures contracts gone sour.
Sadia posted a BRL3.8 billion loss in 2008, its first ever after
65 years in business. Shareholders said Ferreira didn't warn the
board about the company's overextended position.
"The company is making me out to be a villain, and they have
destroyed my image in the marketplace," he said.
Ferreira argues that the company's financial position was
perfectly sound until mid-September, 2008, when Lehman Brothers
Holdings Inc. (LEHMQ) collapsed. The ensuing tsunami washed over
markets worldwide. The Brazilian real lost 29% of its value against
the U.S. dollar last year amid the market turmoil.
"I'm not the villain. I did what I was required to do under
company policy. No one knew the dollar would strengthen the way it
did and lead to those losses," he said.
Ferreira, with two newborn twin girls at home, has been
unemployed since he was fired on Sept. 26. Two others left with
him: Alvaro Ballejo, his department's director, and Walter Fontana
Filho, who resigned from his post as chairman of the board. Fontana
comes from the family that created Sadia in the 1940s.
Sadia is Brazil's sixth-largest exporter. As a brand, it is the
equivalent of a Purdue Farms Inc. As an investment, Sadia's New
York-traded shares have collapsed 72% since Sept. 25, making it one
of Brazil's biggest victims of the financial crisis.
Ferreira started at Sadia in 2002, moving up to CFO four years
later. In 2007, he was put in charge of corporate strategy and risk
management, a new department. Much of the company's profit, 80% in
some quarters, came from his department's investment strategy and
not from selling frozen chicken, its mainstay.
"Sadia is no stranger to financial markets. It's got its own
brokerage house. It operates practically as a bank and has the
know-how," said Ferreira. "The shareholders weren't complaining
when those dollar positions were profitable."
Ferreira added, "The probability of the dollar going the other
way was remote."
But the other way it went.
Sadia's in-house policy stipulates that it can't have more than
7-1/2 months of export revenue in dollar futures positions with
banks. Ferreira said he never ordered anyone to extend dollar risks
beyond that. When Lehman Brothers went bankrupt, the dollar
positions became more costly, shooting beyond the established
Sadia said it will no longer talk about the subject until legal
settlements are reached.
Ferreira started shorting the dollar in 2007 by following what
was then market consensus that the U.S. currency was bound to get
weaker. In fact, the real went from BRL2.20 in October 2005 to
BRL1.56 in July 2008. Sadia's dollar strategy worked wonders until
banks started failing in the U.S.
Sadia lost around BRL600 million in dollar positions it had to
liquidate immediately with major international banks and then, to
add insult to injury, lost another BRL200 million in Lehman
Brothers bonds. Nearly a billion more in dollar futures was
liquidated over the next several months.
Since then, Sadia has undertaken something of an about-face. In
2007, Ferreira instigated an unsuccessful hostile takeover of rival
Perdigao SA (PDA). Now, Sadia, saddled with nine class-action
lawsuits in the U.S., is trying to convince Perdigao to keep it
from going under by entering into a partnership agreement.
The New York fraud class-action suits all state that the company
didn't disclose its overextended forex hedging risks.
"I didn't kill Sadia," Ferreira attests. "It will survive. Life
-By Kenneth Rapoza, Dow Jones Newswires, 5511-2847-4541,