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JBSJBS spreads its wings
By Cluck, moo, oink, ka-ching – The Economist

UNLESS you work with quadrupeds, it may have escaped your notice that a Brazilian company, JBS, is about to become the world’s largest
processor of meat. Its recent acquisition of Pilgrim’s Pride, a big
chicken processor in America and Mexico, and a pending merger with
Bertin, another Brazilian firm, will soon give it bigger sales than
Tyson Foods, the American firm that currently claims the top spot.
Other Brazilian names–Vale in mining, Embraer in aviation, Petrobras
in oil–may be more famous. But JBS is now the second-largest
private-sector company in Brazil by sales, after Vale. And a large
majority of its sales come from outside the country.

This is a stunning transformation for a business that began life in
Goias state 56 years ago with a slaughterhouse that could butcher just
five cattle a day. Its founder, Jose Batista Sobrinho, used to carry
sides of beef on his back to market, according to a friend. The
expanded firm will slaughter more than 140,000 animals a day and employ 129,000 people. Mr Batista’s three sons still control and run the
company, although 49% of it is publicly traded.

The mixture of family control and rapid expansion is unusual in
Brazilian agriculture. Many cattle-ranchers operate in the informal
economy and lots of slaughterhouses do not pay taxes, making the
industry difficult to consolidate. As in other parts of the world,
family-run agricultural firms in Brazil tend to focus on keeping things
intact for the next generation rather than betting the farm.

JBS has behaved differently, bringing in professional management and
expanding through ambitious acquisitions from an early stage. Some say
the company has been too aggressive. It was fined 15m reais ($8.4m) in 2007 for anti-competitive behaviour by Brazil’s antitrust regulator,
although it recently improved its image by agreeing to forgo buying
cows raised on deforested land.

GADOAn international shopping spree has brought the company big operations in Argentina, Italy, Mexico, America and Australia. But none of the company’s previous buys compares in size to its purchase in 2007 of Swift, the third-biggest processor of beef and pork in America and the biggest processor of beef in Australia. With it came a lesson in the politicking that can hamper big foreign acquisitions.

The Ranchers-Cattlemen Action Legal Fund lobbied against JBS before the antitrust committee of America’s Senate, warning of price-gouging of farmers and anti-competitive behaviour, and got a sympathetic hearing. But in the end American regulators approved JBS’s purchase of Swift, just as they approved the Pilgrim’s Pride transaction in mid-October.

Part of the resistance to JBS in America has come from the
distinctively Brazilian way in which the firm is financed. Brazil’s
national development bank, BNDES, has a mandate to promote the
international expansion of Brazilian companies, among other things. It
is funded by a compulsory levy paid by companies and public-sector
bodies on each worker they employ. BNDES bought 13% of JBS’s stock in 2007 as part of a capital-raising that allowed it to buy Swift. It also
provides long-term loans to the company. One way around the
public-relations problem this creates is to buy struggling companies
like Pilgrim’s Pride, which JBS is rescuing from bankruptcy.

A far bigger problem for JBS is how to integrate all its new operations
into a coherent beast. This will be a big test for the Batista brothers
and for Brazil’s tropical brand of capitalism, which mixes family
control with traded stock, and finance from state-run banks with
foreign acquisitions. Brazilian companies in other industries are
watching how JBS gets on and plotting similar moves themselves.

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Vale is a Brazilian pioneering mining company that is present all over the world. The result of its work can be found in most things from cars to mobile phones, household appliances, computers and construction components.

Vale has caught my attention because it has created the Vale Foundation, an institution that develops social programs to contribute to strengthen regional populations while respecting local cultural identities.

The Vale Foundation, together with other non-governmental organizations, local governments and private companies search for ways to improve the quality of life of the communities wherever they are present. “Rede que Vale” (Vale Network – promotes the development of small business enterprise, through management training and access to loans and capital) is one of these programs and you can check it by clicking here.

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Brazil’s Embraer, fourth largest aircraft manufacturer in the world, has announced it is doing really well in spite of the crisis. Associated Press has reported the company delivered 204 jet planes last year, a 21 percent increase over the 169 jets delivered to buyers a year earlier.

The jet maker also announced it has $20.9 billion in firm orders for its planes as of Dec. 31. In 2008, the company delivered 162 midsize jets used for regional routes, 36 executive jets and six jets for military and government customers.

Embraer was Brazil’s largest exporter from 1999 to 2001 and the second largest in 2002, 2003 and 2004. It currently employs more than 23,509 people, 87.7% based in Brazil.

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jetblueJetBlue or Azul Linhas Aereas, one of the leading low-cost carriers in the world,  started its operations in Brazil this week to enter a underexplored and potential gold mine market in South America. The airline was founded by David Neeleman (right) with $150m from American and Brazilian investors  with orders of up to $1.4 bi for 36 jetliners from Embraer (Brazilian Aviation Company).

Below is an excerpt from an article published on the Wall Street Journal by Susan Carey.

David Neeleman, founder of JetBlue Airways Corp., launched his fourth low-cost airline — this time in Brazil — defying poor markets for aircraft financing. Azul Linhas Aéreas Brasileiras SA started service Monday with four jetliners and plans to acquire four more by next month. It had originally planned to start operations in January but moved up its debut to capitalize on the peak holiday season.

Mr. Neeleman said frozen credit markets make this “the worst time ever to finance a plane.” But he said Azul is leasing six aircraft, all directly or indirectly from JetBlue, another Embraer operator, and managed to get financing from the Brazilian Development Bank and a German bank for a few more aircraft. “We have five more to go,” he said in a telephone interview from Salvador de Bahia. “We’ll get it worked.”

The 49-year-old airline executive, who speaks fluent Portuguese and holds both U.S. and Brazilian citizenship, is Azul’s chairman and holds a 20% equity stake and 80% voting control in the venture. A Brazilian retailing executive was recruited as president.

One target market is Brazilians who don’t travel at all, as well as those who take about 250 million trips a year on long-distance buses. As a result, Azul’s cheapest fares, purchased 21 days in advance, are similar in price to bus tickets. Its lowest one-way fare from Campinas to Salvador de Bahia is 209 reals, or roughly $87, for a two-hour flight. The bus takes 33 hours.

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The New York Times highlighted the growth of Power.com, a start up social networking company from Brazil which aims to become the leading portal where people can access their virtual lives. Power’s investors include venture capital firm Draper Fisher Jurvetson and Esther Dyson. What the site does is to put in one place instant messages, network updates, email and contact lists – instead of spread across Facebook, Hi5, LinkedIn, MSN, MySpace and Google’s Orkut.

“To me the important issue is that users are driving Power themselves,” said Esther Dyson, one of the technology industry’s preeminent global trend spotters and a seed investor in Power.com. “And it excites me that these users are not just in the US. Nor are the software’s creators: Latin America has impressive software design and engineering talent. Silicon Valley is not the only place to find great talent to build a world-class company.”

Vachani, a self-proclaimed “global adventurer” arrived in Brazil 5 years ago to take a break from the Silicon Valley. A UC Berkeley graduate, and a serial entrepreneur, Vachani, who lives in Rio de Janeiro, said, “I came to Brazil with a smile, a backpack and a passion for Brazilian dance and music. I just wanted to get my mind off of technology, and I thought I would go back to the US and start a new project after a year or so. Little did I know…”

Vachani soon recognized Latin America’s hidden treasure: undiscovered great minds. Vachani stated, “I quickly realized that Latin America was like India 30 years ago, before Silicon Valley discovered it. Back then, most of India’s brilliant minds were trapped in academia or working as bureaucrats in the government, with no entrepreneurial opportunities. Today, thousands of brilliant minds in Latin America are likewise underutilized and undervalued, with their biggest dreams being jobs as government bureaucrats and academics. Little capital and few role models are available to young entrepreneurs.

If I could create a project that truly pushed the limits of innovation, and that had capital, I knew I would be able to attract hundreds of Brazil’s and Latin America’s brightest minds. Together we have built Latin America’s first global technology company built upon the Silicon Valley adage to first bring the brilliant minds together and then they will create a brilliant product and company.”

Vachani did just that. As founder and CEO of Power.com, he attracted the world renowned Silicon Valley venture capital firm Draper Fisher Jurvetson, famous for investing in Skype, Baidu, and Hotmail, to invest $6 million in Power and complete DFJ’s first ever investment in Latin America. A group of private investors — including Esther Dyson — added another $2 million. Power has attracted over 70 of Brazil’s brightest minds, including self-made entrepreneurs, professors, PhD’s and top graduates from Brazil’s most prestigious universities.

Igor Barenboim, Power’s Director of Business Development, PhD graduate from Harvard University and former Global Economist for Latin America’s largest hedge fund, stated, “I joined Power when it was just an idea on paper because I truly believed that Steve’s vision would help jumpstart Latin America’s transformation into an economy which truly values its intellectual capital. As a Brazilian with great dreams for the future of Latin America, I knew I needed to join this adventure”

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Here’s a quick news round up, about the largest merger in the Brazilian banking history. Itau and Unibanco have announced a joint-venture yesterday creating the largest bank in Latin America – arguably the first major banking player in Latin America – combining about $260 billion in assets. The new Itau-Unibanco has also already announced investments in Mexico, Colombia and Peru. The press in Brazil has welcomed the merger, seen as a good timing to make the country’s financial system more solid to face tough times.

From The Wall Street Journal: “Brazil’s central bank recently announced a $50 billion program of currency swaps to keep financial institutions operating amid the credit squeeze. “This concentration will help strengthen the local financial system,” Finance Minister Guido Mantega told reporters in Brasilia.”

Washington Post: The banks did not give a value for their all-stock transaction, but Sao Paulo-based consultancy Economatica estimated the combined banks would have a market value of $41.3 billion, eclipsing Brazil’s state-owned Banco Brasil and the publicly traded Banco Bradesco.

Financial Times: “This operation takes place at a time of great changes and opportunities in the world, particularly in the financial sector,” they said, adding that Brazil’s banking industry was “in a privileged position, with enormous potential to improve its situation even more in relation to the rest of the world”.

The New York Times: “Whoever says the entire world needs to deleverage hasn’t paid attention to what’s happening in Brazil. Banco Itaú’s $15 billion takeover of a rival, Unibanco, should change that. The deal, announced Monday, creates Latin America’s biggest financial institution, which may become one of the few bright spots in the global banking firmament.”

AFP: “Together, Itau and Unibanco will have assets of 575 billion reais (265 billion dollars) and account for around 20 percent of Brazil’s savings accounts and credit. According to Fortune magazine, Itau made two billion dollars in profits last year from 29 billion dollars in revenues and 168.6 billion dollars in assets. Itau Unibanco would have a “strong international presence,” notably in the countries in the Mercosur trade bloc that comprises Argentina, Brazil, Paraguay and Uruguay, it said.

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ONE of the most popular laws passed by some city vereadores, members of the legislative arm of Brazil’s municipal governments, has been to make any bank queue lasting longer than 15 minutes illegal. No matter that their authority is meant to be limited to duller things, like the mayor’s budget or zoning laws. The vereadores, who along with mayors are up for election in more than 5,000 cities on October 5th, reject such constitutional leg-irons. Competition for the office is fierce—strangely so, perhaps, given that this is the lowliest political post in the land—and can be very expensive.

Transparência, an NGO, has examined the last set of races in three state capitals (São Paulo, Rio de Janeiro and Belo Horizonte), which took place in 2004. Of 55 vereadores elected in São Paulo, 40 declared that they had spent more than 100,000 reais (then $35,000) on their races. One candidate spent over five times that amount. In Rio de Janeiro, some campaigns were even more expensive in terms of votes gathered per real spent. Certain successful candidates in the city spent more than $15 for each vote they won. (In comparison, George Bush spent $5.60 per vote he garnered in the American presidential election that year, and John Kerry, the Democratic candidate, $5.20 for each of his.) If undeclared spending were added, the sums would be even greater.

Why is it worth spending such sums just to become a member of a municipal council? In the big cities, the mayor controls a substantial budget. In smaller ones, money from the federal government, funnelled through the municipality, is often the mainstay of the local economy.

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