June 6, 2017

Brazilian meatpacker JBS SA announced that 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.

The announcement of the sale comes only weeks after J&F Participações (J&F), the holding company of JBS, agreed to pay more than $3 billion in fines under a leniency agreement agreed upon 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.

After the scandal 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.

JBS says in a company statement that it plans to use the funds from the sale to pay down debt.

“The company intends to use the proceeds from the sale to reduce its financial leverage,” JBS said in a brief press release. “The acquisition price is subject to adjustments equivalent to the difference between net working capital and long-term debt at the closing date, which, on March 31, 2017, was positive at approximately US$40 million.”

The sale of the units across Latin America was unanimously approved by JBS’ Board of Directors, however it remains subject to standard regulatory approvals including antitrust clearance, according to the company.

-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.