June 21, 2017

Brazil’s JBS, the largest meatpacker in the world, announced its plans to divest non-core assets with the goal of raising US$1.8 billion in order to reduce the group’s debt. The announcement follows an industry scandal that left J&F Participações (J&F), the holding company of JBS, agreeing to pay more than $3 billion in fines under a leniency agreement between itself and the Brazilian Federal Prosecutor’s Office, after founders of JBS admitted to paying bribes to Brazilian politicians in exchange for preferential treatment and favors including access to cheaper credit, according to the Wall Street Journal.

Marked for sale is Northern Ireland’s Moy Park – one of the top poultry producers in the EU – bought by JBS in 2015 from rival Marfrig in Northern Ireland’s largest food deal to date for US$1.5 billion. Moy Park accounts for 25 percent of the chicken consumed in Western Europe, and holds 13 processing and manufacturing plants across Northern Ireland, England, France, the Netherlands, and Ireland, according to its website.

Also being put up for sale is Greeley, Colorado-based JBS Five Rivers Cattle Feeding LLC – the largest cattle feeding operation in the world -which the group acquired from Smithfield Foods and Continental Grain Co. in 2008. Five Rivers has the ability to handle 980,000 head of cattle at a time – or up to 10 percent of total annual U.S. cattle on feedlots, over its 11 feedlots across Colorado, Arizona, Kansas, Oklahoma, Texas, and Idaho.

The news of both of these upcoming sales comes only weeks after JBS announced it has signed an agreement to sell its beef operations in Argentina, Paraguay, and Uruguay to Pul Argentina SA, Frigomerc SA and Pulsa SA – all entities controlled by rival Minerva for US$300 million.

After the scandal, which ultimately prompted JBS to move on these divestments, became known, Joesley Batista and Wesley Batista, JBS founders and chairman and vice chairman, respectively, of the JBS SA board resigned from their board seats. However, Wesley Batista will remain in his role as CEO of the company while his father, Jose Batista Sobrinho will take over the position of vice chairman of the board.

In addition to the fallout from the scandal, Reuters reports that instability at JBS’ Mercosur division and a strengthening Brazilian real have resulted in a 14.3 percent decline in the company’s first quarter revenue.

The Brazilian beef industry was further tainted by an investigation this spring into 21 of the country’s meatpacking plants accused of bribing sanitation inspectors who then allowed shipments of rotten meat to be sold on both the Brazilian and foreign markets, leading to many countries suspending imports.

This led to JBS suspending beef production at 33 out of 36 plants across Brazil before cutting production by 35 percent across all of its facilities, reports the Wall Street Journal.

“For the industry, this is a disaster,” Carlos Kawall, chief economist at Banco Safra in São Paulo and a former head of Brazil’s Treasury, told the WSJ.

It is also a disaster for JBS itself, which Upside Investor analyst Pedro Galdi told the Wall Street Journal is also facing attempts to boycott its products in its home market of Brazil, (something which JBS refutes) and potential further fines from U.S. authorities.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration, please contact Ms. Kiernan at lkiernan@globalaginvesting.com.