(Reuters) June 15, 2010 – Brazilian processed foods company Marfrig Alimentos SA said it reached an agreement to buy major U.S. distributor Keystone Foods for $1.26 billion, in a bid to expand as a supplier to some of the world’s largest restaurant chains.

Under terms of the agreement, Sao Paulo-based Marfrig plans to buy 100 percent of Keystone’s shares from Lindsay Goldberg LLC, a U.S. private equity firm. The Brazilian company, which has expanded through acquisitions in the past two years as rivals were put up for sale following the global recession, would issue debt convertible into stock to pay for Keystone’s takeover.

“This acquisition raises Marfrig to an outstanding position as a supplier of the whole international chain of McDonald’s, Campbell’s, Subway, ConAgra, Yum Brands and Chipotle,” Marfrig said in a regulatory note late on Monday.

The takeover comes as Marfrig struggles to integrate food processor Seara into its business, which focused originally on meatpacking.

Shares of Marfrig have tumbled 17 percent this year, compared with a 6 percent drop in the benchmark Bovespa index, underscoring investors’ concerns that its recent acquisitions might not bring about the expected strategic advantages for the company.

Shares of Marfrig were down 2.9 percent to 16.37 reais on Tuesday, the biggest intraday tumble since May 25.

“The announced acquisition could raise execution risk at Marfrig, which is already highly leveraged, is going through an integration process with Seara, and is not generating positive cash flows,” wrote Goldman Sachs analysts Gustavo Wigman and Claudio Lensing in a note to clients. Both analysts are recommending investors sell Marfrig stock.

Marfrig is the latest Brazilian food company to expand abroad, tapping growing demand for protein in China and India, the world’s most populous countries. Brazilian companies are also stepping up takeovers in the United States, where company valuations remain low after the deepest economic recession since the 1930s.

Brazil’s JBS SA, the world’s biggest meat processor, bought a 64 percent stake in bankrupt U.S. chicken producer Pilgrim’s Pride Corp for $800 million last year.

Marfrig said in the filing that adding the resources and management of Keystone would enable it to expand its operations and better meet the opportunities for growth in the global food market.

The takeover is subject to the approval of antitrust agencies, Marfrig said, adding that it expects to seal the transaction during the second half of 2010.

By Stuart Grudgings and Guillermo Parra-Bernal