J&F, the holding which owns the majority of shares of food giant JBS, decided to buy Delta Construção. Delta is a company involved in a major scandal, where it won almost half of the contracts in an infrascructure federal program called PAC (Programa de Aceleração do Crescimento – Program of Growth Acceleration). The federal government of Brazil is accused of favoring the company in most of those bids. The changes in Delta were all signed into an agreement. J&F now has the right to replace all the administrative structure.
An early announcement from J&F says that all Delta’s “management will be professionalized through the highest standards of the corporate governance”. “Our goal is to honor the contracts which will be audited and to keep the 30,000 jobs of Delta”, stated Joesley Batista, a shareholder of J&F.
The issue is getting a lot of scrutiny also because state-run bank BNDES has 31.4 participation in JBS and the probation occurs in federal and state levels. Law experts and market specialists are saying that indeed the purchase is not illegal, but is very suspicious.
JBS is also a very powerful donor during election years to all major political parties in Brazil. “This is a very weird diversification. Why are they joining the construction business now? And why Delta? We know throughout studies that companies which finance (political) campaigns have more doors open in the government and get good benefits”, explained to Jornal do Brasil Sérgio Lazzarini, author of the book Capitalismo de Laços (Crony Capitalism).
Even though JBS is under a very strong scrutiny, Itaú Corretora, a well-known Brazilian brokerage,actually recommends new long-term investments at the giant. It would outperform and the stocks value would rise by 23.9 percent. According to analyst Alexandre Ruiz Miguel, JBS has very competitive scale production and leadership in the proteins market, which helps to curb the costs. The diversified businesses of JBS, says Miguel, reduces the cyclical risks of the sector.
The risks, however, lie on the fact that the company could not use well all these advantages. The short-term outlook is not good. The first quarter results did not bring the best profit margins because of its US cattle division.
Many other changes are happening with JBS. Last week, it sold a big asset in Argentina for a price of US$ 16.5 million. Local cooperatives the unities located in San José, province of Entre Ríos. It got US$ 15 million in cash. Argentinian authorities regulations may be the main reason for the exit. The unities were not working since 2009.
The acquisition of Frangosul is costing JBS over US$ 30 million in debts including payments of employees, chicken breeders, suppliers, and service providers. The reorganization of Frangosul would last at least until June 30. There is also the question on how the company would handle the chicken market.
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