JBS moves on from Batista scandal

GREELEY — It is business as usual for Greeley-based JBS USA, the U.S.-based subsidiary of Brazilian meatpacker JBS S.A., which found itself in the crosshairs after the company’s CEO Wesley Batista and his brother Joesley Batista, the company’s former chairman, were embroiled in a corruption and insider-trading scandal in Brazil.

U.S. company officials are quick to say that the Batistas’ legal issues in Brazil had no impact on U.S. operations, yet in the view of some and as noted in legal filings, the issue precipitated the recent sale of JBS feedlots in the United States.

As part of a plea deal negotiated in May, Joesley Batista agreed to provide evidence of corruption to investigators in exchange for leniency, but the deal came with a hefty fine: $3.1 billion over 25 years, which was to be paid by JBS S.A.’s largest shareholder, J&F Investimentos. Later it was found that the Batistas had sold off huge blocks of company stock and purchased foreign currency in advance of their plea deal, which they knew would affect the company’s stock and Brazilian markets. They made $44 million from those trades, according to the Brazilian police.

As reported by Reuters, JBS said in a securities filing that it would sell its 19.2 percent stake in Vigor Alimentos SA, a dairy company based in Brazil, Moy Park Ltd of Northern Ireland and Five Rivers Cattle Feeding in North America to raise $1.8 billion.

Cameron Bruett, a spokesman for JBS USA, said that the events in Brazil “had zero impact on our business or the way we conduct business. The actions of a few individuals in Brazil, some of whom were formerly affiliated with our company, have caused our team in the U.S. to reinforce our strong approach to governance and compliance.” Wesley Batista previously headed U.S. operations from the Greeley headquarters.

Bruett added that JBS USA was already in the process of a multi-year Sarbanes-Oxley Act compliance project in anticipation of an initial public offlering when the events in Brazil occurred.

“We have continued our commitment to SOX compliance and have reviewed all of our systems and policies to ensure that the events in Brazil could never happen here in the U.S,” he said. “It is important to understand that we have conducted business in the U.S. for many years and have established great partnerships with customers and suppliers. They believe in us and we work hard to provide them the best possible products to help their businesses thrive. In 2017, we increased our customer base and had the best year in our decade of being headquartered in Colorado. Our business continues to grow and thrive.”

He added that none of the individuals involved in the events in Brazil currently serve as directors, officers or employees in the company’s business.

Affiliates of Pinnacle Asset Management, L.P., a commodities and natural resources investment firm, announced in January 2018 that they were acquiring Five Rivers Cattle Feeding from JBS USA for about $200 million, as part of JBS S.A.’s previously announced intention to sell the operation, along with two other subsidiaries in other countries.

Five Rivers operates feedlots in Colorado, Kansas, Arizona, Idaho, Texas and Alberta, Canada, and is considered the largest cattle feeding operation in the world. It has the capacity to feed more than 900,000 head of cattle at one time.

A press release announcing the agreement said that the deal would not interrupt operations at the affected feedlots and that Five Rivers would continue to honor a long-term agreement to supply cattle to JBS USA beef processing plants.

“The sale of the Five Rivers is a strategic move that will allow JBS USA to more efficiently deploy working capital and focus on the company’s core food and value-added products businesses,” said Bruett. “The transaction strengthens our balance sheet and allows us to compete on equal footing with our key U.S. beef competitors, who have also divested their cattle feeding assets in recent years. Importantly, the proposed transaction includes a long-term cattle supply agreement, which will benefit Five Rivers by providing them a committed customer and benefit JBS USA by maintaining our access to the highest quality cattle in America.”

Kevin Good, senior market analyst at CattleFax, said that from what he has seen, as an outsider looking into their business operations, JBS is operating as it always has. Even with the sale of Five Rivers, the feedlots will be run as full as possible so “it shouldn’t affect the amount of cattle harvested in the state. It should be seamless,” he said.

In regard to the events in Brazil, where JBS S.A. was involved in a bribery scandal involving company executives and Brazilian politicians, Good said that the U.S. markets have “been insulated. Our markets haven’t been affected from a price standpoint. You can read between the lines of what you read in the papers. That is the primary reason for them freeing up capital by selling their feed yards,” Good said.

Terry Fankhauser, executive vice president of Colorado Cattlemen’s Association, said that JBS, like many multi-country companies, has common ownership but separate management teams in the various countries in which it operates.

“JBS USA, to my knowledge and what we’ve experienced and, frankly, the oversight of that company has a really strong, positive track record,” he said. “We can’t say the same thing necessarily for what is going on in Brazil.

“Our commentary to JBS and others is that we’re very concerned about U.S. cattle supply and beef supply and that nonsense doesn’t belong here. We trust the management at JBS would not find themselves in that situation,” Fankhauser said. “It is more than their company that depends on the success of their brand. Our producers do too. Our feeders do as well, and certainly our consumers do too. Trust in our product is really important. I’m thankful that none of that is connected to the U.S. operations.”

He said he is thankful that the United States reacted quickly to the issue of tainted produce coming from Brazil.

“They put a moratorium on imports to further look into issues and promote confidence in our product. Nothing questionable ever entered this country, much less anything that harmed the reputation of our product or consumer. That is positive as well,” he said. “I’m thankful we have those safeguards in place. That’s why transparency and responsibility is so important in this business. When you have an issue like that, you have to address it in a responsible fashion.”

Fankhauser said that while the sale of Five Rivers was part of the company’s overall divestment of assets as it relates to planning and structure, JBS isn’t the only feedlot operator that has gotten out of the feeding side of the business recently.

He said that large meat packer Cargill announced it was divesting its last two feedlots in April 2017.

“Our major concern or interest was making sure that feeding capacity would continue in Colorado and, secondarily, that there wasn’t any interruption in their participation in buying feeder cattle in all of Colorado’s markets and other states, frankly,” he said. “Having fewer buyers for the commodities, the livestock produce, is not a good thing. Having more demand is a good thing.”

Colorado Cattlemen’s Association is glad the Five Rivers feedlots moved as a block.

“We are glad they have an agriculturally connected buyer even though it is an investment firm. There is a history there of owning agricultural assets and even feedlots,” he said. “We’re pleased that the existing management, for the most part, is going to continue because we have a relationship with them, a good constructive relationship.”

JBS believes that Five Rivers “will continue to thrive under new ownership, maintaining its status as the leading cattle feeding business in the world,” said Bruett. “The entire senior team at Five Rivers is remaining in place, ensuring continuity of operations and allowing them to build on the strong legacy they have established.”

The company said that its plans for an IPO have not changed. It will continue to monitor the market to determine the most advantageous time to act upon it, he said.

Bruett adds that 2017 was a banner year for JBS USA and the company believes 2018 will also be a strong year for the company.

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