São Paulo, Brazil — A dramatic reorganization of the world’s largest publicly traded meat company will give JBS S.A. (to be renamed JBS Foods International) improved access to global capital markets and will raise its profile in the institutional investor community, the company said.
Plans for the reorganization and details about the business were published Aug. 5 in registration statements filed with the Securities and Exchange Commission. Following a complex transaction, JBS Foods International will be a publicly traded company listed on the New York Stock Exchange under the symbol “JBS.”
Under the reorganization, JBS S.A. will contribute all of its assets except its Brazilian beef business to a new holding company (designated as New Holdco). New Holdco will be a wholly-owned subsidiary of JBS International. JBS S.A., the retained Brazilian business, will become a consolidated subsidiary of JBS Foods International but will still trade separately on the Brazilian stock exchange (shares accounting for about 25% of the Brazilian business will continue to trade in this manner). Current shareholders of JBS S.A. common shares will receive one JBS Foods International share for every four JBS S.A. common share held on the distribution date. The transaction is expected to be completed in the fourth quarter.
In a company overview in the filing, JBS describes its business as one of the largest:
• Beef producers and exporters in the world with operations in the United States, Brazil, Argentina, Paraguay, Uruguay, Australia and Canada and a capacity to slaughter about 82,400 head of cattle daily;
• Poultry producers in the world, with operations in the United States, Mexico, Puerto Rico, Brazil and the United Kingdom and capacity to slaughter 13.8 million chickens per day;
• Pork producers in Brazil and the United States, with daily capacity to slaughter a combined 110,500 hogs in these markets (in addition to capacity in Australia to slaughter 4,000 hogs per day);
• Lamb and sheep producers and exporters in the world, with operations in Australia and daily slaughtering capacity of about 23,100 lambs;
• And suppliers of further processed and value-added meat products in the world, with a total production capacity of about 204,100 tonnes as of March 2016.
JBS also is one of the largest leather tanners in the world.
“Our fresh products include fresh and frozen cuts of beef, pork, lamb and sheep, whole chickens and chicken parts,” JBS said. “Our processed and value-added meat products include products that are cut, ground and packaged in a customized manner for specific orders and include frozen, cooked, canned, seasoned, marinated and consumer-ready products. In addition, we produce and sell animal byproducts that are derived from our beef processing.”
The company also sells prepared food products, including ready-to-eat meals, frozen pizza and lasagna. JBS’s customers are mostly retailers and food service companies. As of March, JBS had more than 350,000 active customers. The company sells its products in 190 countries on 5 continents.
“Through strategic acquisition in new geographies, primarily in the United States, Australia, Brazil and Europe, we have created a diversified global platform that allows us to prepare, package and deliver fresh, processed and value-added beef, poultry, pork, lamb and sheep products and animal byproducts from our facilities located around the world,” JBS said.
The company’s North American brands include Swift, 1855, Pilgrim’s Pride, Pierce, Gold Kist Farms and Del Dia.
A business established in 1953 by Jose Batista Sborinho, “global protein powerhouse” would not have been an apt descriptor for the company’s first 50 years. Mr. Batista started the company operating a small slaughterhouse (daily slaughtering capacity: five head of cattle) in Anapolis in the State of Goias, about 100 miles southwest of Brasilia. Originally named Friboi Ltd., the company began expanding in the early 1970s through acquisitions and capital expenditures. By 2001, daily slaughter capacity in Brazil had reached 5,800 head of cattle.
In 2005, the company made its first international foray, acquiring Swift-Armour Argentina S.A., the largest beef producer and exporter in Argentina. The following year the corporation was renamed JBS S.A.
Frenetic expansion marked the following 10 years, including an initial public offering in Brazil in 2007 and the $1.5 billion acquisition of Swift & Co. in the United States that same year.
In 2008, JBS acquired National Beef Packing Co. and Smithfield Beef Group, Inc. in the United States and Tasman Group Ltd. in Australia.
In 2009, JBS acquired 65% of Pilgrim’s Pride Corp., one of the largest chicken processors in the United States. In transactions in 2014 and 2015, JBS acquired the Brazilian and Mexican poultry assets of Tyson Foods, Inc., and in March 2015 acquired Consolidated Food Holdings Pty Ltd. (known as Primo) for $1.2 billion. Primo is a leading processor of lamb, sheep and pork in Australia.
That same year, JBS acquired Moy Park Holdings Europe Ltd. for $1.5 billion. The transaction expanded JBS operations in Europe, including its portfolio of processed and high value-added products. Yet another transaction in 2015, completed in October, was a $1.4 billion acquisition of the Cargill Meat Solutions Corp. U.S. pork business.
Even after this expansion, the company’s principal shareholders remain Mr. Batista, his wife, Flora Mendonça Batista, and five of their children: Valere Batista Mendonça Ramos, Vanessa Mendonça Batista, Wesley Mendonça Batista, Joesley Mendonça Batista and Vivianne Mendonça Batista.
The Batista family owns 44.5% of JBS. The Brazilian National Economic and Social Development Bank owns 21.4% while Caixa, a financial institution owned by the Brazilian government, owns 7.3%. Other shareholders own 26.8%. Following the transaction, the family is expected to own 46.7% of JBS Foods International.
Since July, the company has been led by Wesley Mendonça Batista. The 46-year-old took the helm of the company’s global operations in 2011 and for four years before that was president and chief executive officer of JBS USA Holdings. In that role, he oversaw the U.S market following the 2007 acquisition of Swift & Company. Also during his tenure the Smithfield Beef and other beef businesses were acquired as was a controlling interest in Pilgrim’s Pride.
Before 2007, Mr. Batista spent 15 years as chief operating officer of the company’s operations in Brazil and Argentina. It was during this period the company became the largest beef producer and exporter in Latin America.
In 2015, JBS S.A. net income was 5,128.6 million reals (the exchange rate recently was 3.22 reals per dollar), up from 2,406.4 million in 2014 and 1,118.3 million in 2013. Net revenue was 162,914.5 million reals in 2015, up from 120,469.7 million in 2014 and 92,902.8 million in 2013. Gross profit and operating profit steadily improved during this period.
In the first three months of 2016, JBS S.A. sustained a loss of 3,802.6 million reals, versus a profit of 2,089.4 million in the same period in 2015. Sales were 43,911.9 million reals, up from 33,819 million. The loss was attributed in large measure to a surge in the value of the real — up 36% over the year. The currency swing also represented a significant headwind for the company in 2015. During this period, 85% of the company’s revenues came from sales outside of Brazil.
The company’s long-term debt as of March 31 was 43,198 million reals (plus another 21 million of current debt). The company said its financing strategy post-transaction will be to extend the average maturity of outstanding debt and reduce financing costs by “accessing lower-cost sources of finance, including through the international capital markets and export finance.” Yield on the company’s long-term debt hovered around 7% recently, a level analysts said is likely to decline following the restructuring.
The importance of financing as a driver of the JBS restructuring decision was emphasized by Wesley Batista.
“JBS doesn’t have the same access to capital as other global players,” he said in a recent interview with Bloomberg News. “We’re seeking a structure that better reflects the company JBS has become.”
The restructuring is taking place against a backdrop of turmoil in Brazil and at JBS. Enduring a severe recession, surging inflation and rising interest rates, the country’s political leadership has been wracked by scandal.
Brazil’s problems appear to have had serious spillover effect at JBS.
Joesley Batista is among a group of individuals who are subjects of a criminal complaint filed by the federal prosecutor’s office in Brazil related to financial transactions. The prospectus describes the proceeding as “in its early stages” but warns of the possibility the company’s reputation may be adversely affected. JBS is not a party to the complaint. More recently, JBS has been accused of making illegal political contributions, raising the specter of the company being dragged more deeply into Brazil’s political morass.
Still, the market reacted ebulliently to news of the restructuring plan. Shares of JBS jumped in trading on the Brazilian exchange by about 25% the day the plan was announced, lifting the company’s market capitalization to about $9 billion.
The prospectus offers a fairly deep look into JBS consolidated operations around the world. In the United States, JBS operates nine beef processing plants (daily capacity, 27,455 head of cattle) , five pork processing plants (89,700) and 23 poultry plants (6,207,626). The company’s U.S. corporate headquarters are in Greeley, Colo., about 60 miles north of Denver. JBS S.A. headquarters are in Sao Paulo, but the new business has been incorporated in Dublin, Ireland. The company also leased office space in New York City.