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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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