April 16, 2018 / 8:30 PM / 3 months ago

UPDATE 1-New board of Brazil's BRF likely to keep top executives -sources

(Adds comments from sources, background on BRF’s struggles, paragraphs 3-14)

By Aluisio Alves and Ana Mano

SAO PAULO, April 16 (Reuters) - Executives at Brazilian food processor BRF SA are likely to stay in charge after a new board is elected this month, three people close to the matter said, in a sign of confidence from key shareholders that they can pull off a turnaround at the struggling food company.

“The current management is not to blame for its predicament,” said one of the sources on condition of anonymity. “The current team has a clear vision of what needs to be done.”

BRF declined to comment about the consequences of a board election to be held on April 26.

BRF, Brazil’s largest chicken processor, posted two straight annual losses and has been tangled in a food safety probe that resulted in plant closures and a ban on chicken exports to the European Union.

In December, José Aurélio Drummond Jr took over as chief executive officer from Pedro Faria, who was arrested and later released in connection with the food probe.

The problems led shareholders Previ and Petros and Aberdeen Asset Management Plc to push for a board shake-up.

The three shareholders, which hold a combined 27 percent of the food processor, want to curtail the power of a rival group led by current Chairman Abílio Diniz, according to the source.

Diniz and investment fund Tarpon Investimentos SA , which has allied with him in the past, together own 12 percent of the company.

Attempts failed to find consensus among dissenting shareholders on 10 new names to compose the board, leading Aberdeen to suggest adoption of a cumulative voting system for individual board members.

This may lead to divisions within the board, although no potential disagreements will prevent strategic changes, the source said.

On Wednesday, Institutional Shareholder Services recommended that holders of BRF’s New York-listed American depositary receipts should abstain from the election if cumulative voting is adopted.

“The (current) management deserves a lot of credit for remaining focused despite all the noise at the board level,” a second source said.

BRF’s planned turnaround will include a renewed focus on processed foods over commodity products to improve profit margins, the first source said. The new board will also give more independence to executives, reducing Diniz’s influence, the person added.

Diniz’s investment vehicle Península did not reply to a request for comment. (Reporting by Aluísio Alves and Ana Mano Writing by Ana Mano Editing by Chizu Nomiyama and David Gregorio)

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