Much of what Brazil-based JBS had to report for its 2020 year-end earnings this week were record-shattering results: $52.3 billion in sales, up 32%; $5.6 billion in adjusted earnings, up 49%; Sales from its prized American subsidiaries hit $40 billion for the first time, while leverage is now at historic lows for the acquisition hungry company.
The company is counting on that momentum to finally deliver on its plans to spin off its U.S. beef, pork and chicken business, which makes up 76% of total revenue.With hot public markets and a never-ending stream of quick and cheap SPAC listings, 2021 could be JBS’s best chance to set itself up for a prime public listing.
“The listing in the U.S. is not a question of if, but rather than when,” JBS S.A. CEO Gilberto Tomazoni said at the beginning of the company’s year-end earnings call.
But it will have a tough time living up to 2020’s results, which beat expectations amid slaughterhouse backups, production lines slowing down and trucking and ports delays. The record earnings come against the backdrop of the pandemic, which has threatened thousands of JBS’s slaughterhouse workers in Brazil and the U.S., including six at JBS’s beef plant in Greeley, Colorado who died after an outbreak in May exposed more than 300 to the novel coronavirus.
The Batistas and their family holding company stand a lot to gain from an IPO. Their J&F Investimentos owns some 35% of JBS shares—and is controlled by the brothers Joesley and Wesley Batista, who took over for their founding father two decades ago and aggressively brought their family’s Brazilian slaughterhouse business to the U.S. and became billionaires in the process. They got into bidding wars with Tyson and acquired some historic businesses, including the pork processor Swift, beef plants formerly owned by Smithfield and Cargill, as well as publicly traded Pilgrim’s Pride.
They have wanted to spin off these U.S-based assets for over a decade, but plans have been continually pulled back—first in 2009 due to the global recession, and then due to JBS’ own food safety and corruption scandals in 2017. In the span of a few months, a years-long bribery scheme—which touched Brazilian meat inspectors and thousands of politicians—was exposed, thanks to Joesley Batista recording a conversation with Brazil’s then-president Michel Temer. The Batistas signed a plea bargain in Brazil admitting to the bribery scheme in exchange for no jail time but were arrested later that year after breaking the terms. They both served around six months and were released in 2018.
The Brazilian deal prohibited the Batistas from rejoining JBS as managers, or J&F’s board, but in May 2020 a judge ruled they could participate in board meetings of J&F. A string of settlements followed: First in October with the Department of Justice for $256 million between the Batistas and J&F; a related settlement announced the same day between JBS S.A. and the Securities and Exchange Commission was for $26 million. Terms included cooperating in other investigations, and shortly thereafter, Pilgrim’s Pride, of which JBS owns some 80%, settled with the Department of Justice for $110.5 million for its role in an industry-wide price-fixing conspiracy. In January 2021, Pilgrim’s settled a lawsuit with poultry purchasers for $75 million. A federal judge also granted a class action settlement over pork price fixing with JBS’ American pork business for $24 million.
But with the SEC looking to formalize ESG investing, these governance issues create lasting questions that need to be addressed if an IPO is coming in the future.
“If you’re JBS, and you’ve had the corporate governance problems that they’ve had in Brazil, listing on the New York Stock Exchange for them is really important,” says Alessia Apostolatos, a global food industry analyst at HSBC. “If they want to buy more brands and they want to buy more meatpackers, and they want to invest at a competitive rate in the industry, they need that lower cost of capital and they need those investors who are willing to pay a premium on the equity side. For them, it’s critical.”
Rumors have already swirled about an acquisition: In March, JBS reportedly held talks with Conagra to buy Hebrew National. One way or another, JBS knows it needs to set itself up for growth this year — especially if it want’s the ultimate prize: an IPO.
