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UPDATE 3-Brazil meatpackers BRF, Marfrig call off talks on proposed tie-up

By Tatiana Bautzer and Carolina Mandl

(Adds background on Marfrig)

By Tatiana Bautzer and Carolina Mandl

SAO PAULO, July 11 (Reuters) - Brazilian meatpackers BRF SA and Marfrig Global Foods SA said on Thursday that they had mutually agreed to call off negotiations for a possible merger that were going on for a month.

The two companies said in securities filings they had ended the talks because they could not agree on the governance structure of the potentially merged company.

Two sources with knowledge of the matter said key shareholders, such as founding families of BRF SA, Fontana and Furlan, and pension funds such as Previ and Petros, were against the proposed merger, mainly due to the expected prominence of Marcos Molina, founder and Marfrig Chairman, in the management of the future company.

Molina has a 30% stake in Marfrig and would own 5% in the combined entity, the source added, asking for anonymity to disclose private talks.

Molina was seeking to buy more Marfrig shares to have a larger stake in the combined company, another person close to Marfrig said.

BRF is a corporation with fragmented ownership, but the ownership structure at Marfrig is closer to a family business. Molina controls Marfrig with an agreement with development bank BNDES. Molina agreed with prosecutors last year to pay a fine to end a corruption probe involving loans by state bank Caixa Economica Federal.

After discussions with Marfrig, BRF management decided to end the talks early on Thursday evening, sending a message to the BRF board explaining the decision.

Reuters reported last month that some board members at BRF voted against the discussions for a merger with Marfrig. .

The proposed tie-up would have created one of the world's largest meat producers. BRF leads the world in chicken exports and is also active in pork, while Marfrig's global beef business is second to only JBS SA. (Reporting by Tatiana Bautzer and Carolina Mandl in Sao Paulo and Jake Spring in Brasilia Editing by Sandra Maler)