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JBS jettisons processing assets in South America, as crisis impact starts to take effect

by Jon Condon, 07 June 2017
2

Updated with additional information 8am Thurs 8 June – Editor

 

THE world’s largest meat processor, JBS, will sell all of its South American beef processing assets outside of Brazil, as the first wave of repercussions from the recent corruption crisis surrounding major shareholders, the Batista family, starts to take effect.

An overnight company announcement said JBS had signed an agreement to sell its shareholding interest in subsidiaries that own its beef operations in Argentina (five plants), Paraguay (three plants) and Uruguay (one plant) in a deal worth A$400 million. Some commentators have already remarked that that price looks cheap. The JBS Rosaria plant in Argentina, alone, is said to be on a similar scale as Dinmore, and quite modern.

The purchaser is JBS’s major processing competitor in South America, Minerva S.A. The acquisitions will bost Minerva’s beef processing capability by 52 percent, the company said, taking capacity to 26,300 head per day.

The transaction was unanimously approved by JBS’s board, and is subject to the usual regulatory approvals, including anti-trust authorities, this morning’s statement said. The company said it will use the proceeds from the sale to ‘reduce its financial leverage.’

The company maintains that the sale of the assets in South America was “a strategic decision that will allow the company to focus on its growth strategy in larger and more profitable markets. Proceeds from the sale will be leveraged for operational purposes and do not relate to the leniency agreement signed by JBS holding company, J&F Investimentos.”

The sale announcement is just the latest in a series of dramatic developments since news of the crisis first broke a fortnight ago (see Beef Central’s original story here).

On May 31, JBS announced that the major shareholders, the Batista family’s holding company J&F had signed a leniency agreement with Brazil’s Federal Public Prosecutor’s Office over the earlier bribery scandal.

The leniency deal included:

  • “Payment of R$10.3 billion, payable solely by J&F, preserving minority shareholders and JBS from any financial impact from the agreement, thus assuring the (JBS) company’s normal course of business, protecting jobs while offering quality products and services.”
  • Investments by J&F in education and other social projects to the value of R$2.3 billion
  • The implementation of a new compliance and integrity program by JBS, including global corporate governance best practices.

Additionally, the agreement allowed JBS and other companies in which J&F is a shareholder to negotiate and renew corporate loans with all Brazilian financial institutions, including publicly-owned banks.

The combined fines are reported to be the largest ever in a leniency agreement worldwide, according to a statement by the Brazilian Prosecutor’s Office.

Sources close to the JBS operations suggest that because the terms of the agreement are indexed to CPI, together with Brazil’s high rate of annual inflation, the Batistas could ultimately have to pay up to 20 billion Real (about US$9 billion or A$12 billion) over the 25-year payment terms.

Most of the fine J&F will pay will be divided among Brazil’s development bank, workers’ severance fund, two pension funds for employees of state-controlled companies and federal lender Caixa Economica Federal.

To re-cap on earlier developments, bribes paid by the Batistas to Brazil’s former and current presidents and meat inspectors amounted to billions of dollars, and investigations are also examining questionable loans made to JBS by Brazil’s National Economic and Social Development Bank (BNDES). The bribery allegations still threaten to topple Brazilian President Michel Temer.

Former company chairman Joesley Batista is at the centre of the corruption investigation into President Temer, after secretly recording a conversation in which the President appeared to condone bribing potential witnesses. Other JBS executives in plea-bargain testimony accused Mr Temer of taking $A6.7m in bribes from the company in recent years. The Batistas admitted in testimony to spending 600 million Real in bribing nearly 1900 politicians in recent years.

Board changes, focus on governance

The leniency agreement comes after the resignations of Joesley Batista and his brother, Wesley, from the JBS SA board.

On May 28, Joesley Batista resigned as chairman of JBS and left the board. His brother Wesley resigned as vice-chairman, although he retained a board seat and is still the firm’s chief executive officer.

Current JBS board member, Tarek Farahat, was elected chairman, while patriarch of the Batista clan, José Batista, was elected vice chairman. Mr Farahat has been a director of JBS since 2013 and has served as global president of marketing and innovation since 2015.

The board also ratified the creation of a Governance Committee, which will be led by Mr Farahat. Its main objective will be to implement “global best practices in corporate governance and compliance” at JBS.

“Governance is my utmost priority,” Mr Farahat said in a JBS statement. “We will work hard to restore trust with the market and protect the 235,000 families that are part of JBS. There is a significant amount of work to be done in order to regain the trust of our stakeholders,” he said.

“We remain focused on offering consumers the highest quality products and services, while maintaining a close partnership with our suppliers and clients, and supporting our team members worldwide.”

On June 5, a Brazilian court issued an injunction to freeze BRL800m (A$328m) in the bank accounts of Joesley Batista, in reference to alleged gains obtained in the foreign currency market hours before his plea bargain deal revealing a bribery scheme was made public.

Brazil’s securities regulator has launched an investigation into insider trading involving JBS’s major shareholders last month. The Batista family’s group of companies allegedly purchased more than $1 billion in US$ contracts just hours before news on J&F’s plea bargain deal were made public on May 17.

On June 8, JBS SA told Reuters that no core assets in the United States or any other part of the world were candidates for sale, a day after announcing a deal to sell Argentine operations to a smaller rival. The agreement with buyer Minerva SA, announced on Wednesday, was the first by JBS since its founders admitted to paying bribes to Brazilian politicians in exchange for favors in a scandal that threatens to topple President Michel Temer.

  • Beef Central would like to point out to readers that twice over the years it has raised the issue of the propriety of financial dealings with BNDES with members of the Batista family, during their occasional Australian visits. On both occasions no comment was forthcoming.
  • This page from the company’s Brazilian website discusses JBS’s approach to corporate governance.
  • See this morning’s second story: What the are implications for Australia in the JBS crisis?

 

 



Reader's Comments


Comment
  • Tony Connellan June 7, 2017

    The talk in Brazil is that the Brazilian Government now wants to nationalise JBS. One way or the other, there is no future in the business for the Batista family, given what has happened.

  • John Dyson June 8, 2017

    While it is unfortunate that JBS operations in Australia and the US have been caught up in this, the company will never shake-off the stigma of corruption until it rids itself of the Batista family on the share register. The cancer must be cut out in order to recover.

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