Can scandal-plagued JBS's plans for an IPO succeed?
- Brazil-based global meat giant JBS SA announced it plans to launch an IPO in the U.S. market next year, despite deep legal and financial challenges both in its home country and abroad, according to an article in Meat + Poultry.
- “If you look at JBS today, 80% of our businesses are outside of Brazil, and we are a much more international company and very diversified protein player,” CEO Wesley Batista said in an investor call quoted in Meat + Poultry. “And we believe…being listed in the U.S. under U.S. rules…accessing a broader investor base…is the right direction for the company to reflect who we are today.”
- JBS is working on a comprehensive reorganization strategy and has made several high-profile new hires, but the company still faces problems. Batista and his brother, former JBS chairman Joesley Batista, are at the center of a corruption scandal that has rocked Brazil's government after admitting they spent millions to bribe nearly 2,000 politicians and government officials.
After announcing five previous times that it would launch an IPO — and abruptly changing its plans, most recently in the first half of 2017 — it's doubtful that the initial public offering will actually go forward as planned next year. The chances of it happening get even smaller when JBS is examined through a wider lens than just its U.S.-based business.
The JBS bribery scandal threatened to take down Brazilian President Michel Temer, who reportedly discussed bribes with the Batistas. It also caused a food safety panic when recordings of the Batistas indicated the company had bribed some inspectors, allowing adulterated or spoiled meat to be sold. The Batista brothers have accepted plea deals for the bribery charges, and have paid a settlement of the equivalent of $3.23 billion through an investment firm that controls the company.
While JBS has worked to get back on its feet, the scandal continues to plague the company. JBS reported earnings in Brazil this week, which showed the company's quarterly net income was down 80% from the year ago period to the equivalent of $97.16 million. The sole bright spot in the report came from the company's earnings before interest, tax, depreciation and amortization, which came in at nearly the equivalent of $1 million above estimates, thanks to strong business in the U.S., Canada and Australia.
Poor financial reports and the company leadership's track record of corruption are reportedly fueling a potential investors' coup to remove Wesley Batista from company leadership. According to The Wall Street Journal, the meat giant's second-largest investor, Brazilian national development bank BNDES, plans to propose a lawsuit to sue Wesley Batista for losses “caused to its patrimony as a result of the illicit acts” at the Sept. 1 investors' meeting. The lawsuit would ban Wesley Batista and other executives from future management of the meat giant.
Even though JBS's U.S.-based businesses are performing well, the prospects of an IPO in 2018 are not promising. Brazil's economy has fallen and grown slowly, and analysts say that companies in South America's largest country have found recent success on the stock market. However, most companies aren't at the center of the corruption maelstrom. Wesley Batista, who was quoted in a Brazilian newspaper as saying the company suffered a "setback to the plan" of going for an IPO at the beginning of the year, is not the sort of corporate leader who inspires investor confidence right now.
All of the structural changes the company is making cannot overhaul the current scandal, the fallout of which is still unfolding in Brazil today. And if the Batistas are indeed permanently removed from company leadership later this year, the IPO strategy itself may become shelved. JBS could be best served by using its time and effort to rebuild its business and reputation before going public. If the company can solve its internal issues and take steps to ensure investor confidence, the IPO could rock the markets — instead of sinking to rock bottom.
- Meat + Poultry JBS IPO 'delayed, but not derailed'
- Meatingplace JBS plans U.S. IPO for 2018; shareholder presses on Batistas accountability
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