Brazilian meatpacker JBS SA replaced its top two executives on Tuesday as it scrambles to reassure investors that a fraud investigation at a related company won’t disrupt the world’s largest protein producer.
JBS said in a note to the market on Tuesday that José Batista Júnior will take over as interim chief executive, substituting for his brother Wesley Batista. The company appointed their father, José Batista Sobrinho, who is also the founder of JBS as chairman to replace his other son, Joesley Batista.
The meat and poultry giant, whose U.S. holdings include poultry producer Pilgrim’s Pride and meat processor Swift & Company, has been under pressure to name new leadership since last week. On Sept. 5, Wesley and Joesley Batista were forced to step aside while police investigate alleged fraud at a paper-pulp producer owned by the Batista family’s investment company, J&F Investimentos SA.
JBS shares gained 1.5% Tuesday, outperforming Brazil’s benchmark Ibovespa stocks index, which declined 3%.
But analysts said the change has done little to satisfy investors’ questions about the extent of the Batista’s legal woes or the potential consequences for JBS at a time of upheaval in Brazil, where political scandals have ensnared some of the country’s biggest corporate names, said João Pedro Brugger, an analyst at Leme Investimentos in Florianopolis.
“The main problem is that the investigation could have new developments,” he said.
The two Batista brothers’ legal troubles stem from a massive police operation launched last week targeting more than 100 individuals and businesses across Brazil. Dubbed Operation Greenfield, the probe is aimed at uncovering alleged malfeasance at four state pension funds that allegedly overpaid for stakes in Brazilian-owned companies, including pulp maker Eldorado Brasil Celulose SA, which is controlled by the Batista’s holding company.
JBS isn’t a target of the probe. But Wesley and Joesley Batista were among more than three dozen Brazilian executives barred by a judge from managing any business while police investigate the alleged scam.
JBS said Tuesday that Joesley and Wesley Batista will appeal the court order. A J&F spokesman has denied any wrongdoing by the brothers or by Eldorado.
Recent investigations in Brazil into alleged overbilling linked to government contracting, including the blockbuster probe centered on state-run oil company Petróleo Brasileiro S.A or Petrobras, have turned up evidence that some of the funds were used to pay bribes and kickbacks to politicians.
The Petrobras scandal has soured some investors on firms in Brazil, including JBS, which has cultivated close ties to the government. Shares of JBS are down nearly 32% over the past year. Brazilian government entities own more than one-quarter of JBS shares, part of a state strategy that turned the meatpacker into a globally competitive player.
J&F and JBS both face legal issues of their own. Brazil´s accounting watchdog, known as the TCU, recently opened an investigation into potential “irregularities” regarding a loan from state-owned lender Caixa Econômica Federal that J&F used to buy Alpargatas SA, maker of the popular Havaianas brand of flip-flops.
The probe is still in preliminary stages, according to a TCU spokeswoman, who decline to provide more details on the alleged irregularities.
J&F declined to comment on the investigation, Caixa in an email said J&F met all its risk-analysis requirements and that it will fully collaborate with the investigation.
Prosecutors are also looking at whether or not JBS received preferential treatment from state development bank BNDES, which helped finance a string of acquisitions by the meatpacker that turned it into the world’s biggest producer of animal protein. BNDES owns 20.4% of JBS’s shares, while state-owned lender Caixa Economica Federal owns another 6.5% of JBS shares.
JBS declined to comment on that investigation and BNDES didn’t respond to requests for comment.
Marcos Peixoto, a São Paulo-based money manager at investment firm XP Gestão de Recursos, said JBS´s close ties to the Brazilian government have kept his firm away from the meatpacker. Now, he fears that JBS may have difficulties rolling over debt and implementing its reorganization plan.
JBS has some 18 billion reais in short term debt to be rolled over in the next 12 months, according to a report by Banco Bradesco BBI. The firm has said it is also moving ahead with a big reorganization plan, to spin off its international business into an Ireland-based company with shares traded at the NYSE.
Analysts and investors believe JBS may have difficulty concluding the restructuring by the end of the year, as expected.
JBS’s share price dropped 10% on Sept. 5, the day police raided Eldorado’s offices and brought in Wesley Batista for questioning. Joesley Batista, who is CEO of J&F, was out of the country the day of the raid and is scheduled to be questioned by police this week.
Other firms controlled by J&F are being forced by the court order to make changes as well. Eldorado is temporarily replacing Joesley and Wesley Batista from their positions as chairman and vice chairman. Footwear company Alpargatas said Tuesday in a note to the market that two board members will take over for the two brothers temporarily.
By Jeffrey T. Lewis
Source: Wall Street Journal
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