May 7, 2012

JBS to lease for Brazilian chicken sector entry
 

JBS, the world's biggest meat group, has decided to enter Brazil's important poultry market through a lease arrangement.
 
JBS, whose debts run up from a series of acquisitions garnered the group close inspection from ratings agencies, revealed it is to take control but not own the Brazilian chicken operations of French-based Doux, which have capacity of well over one million birds a day.
 
JBS is to lease plants owned by Doux's Frangosul subsidiary, while hiring the business's 6,000 staff and taking on contracts with its 1,500 supplies.
 
However, the meat giant, which is based in Brazil itself, "will not take on any pending matters, liabilities, leins or any other impediments".
 
The announcements represents the second in two weeks of expansion at JBS, after the group unveiled BRL4628 million (US$142 million) plans to buy the assets of bankrupt meat processor Grupo Independence, ending a purdah imposed by Wesley Batista on deals after he became chief executive early on 2011.
 
JBS had raised eyebrows with ratings agencies at the extent of its takeovers up to 2010, including the purchases of domestic rival Bertin and US-based chicken group, Pilgrim's Pride, in the same day.
 
Pilgrim's Pride has only just returned to profit, after four quarters of losses, reflecting oversupply of chicken to the US market, which prevented producers from passing on the costs of higher grain bills.
 
JBS said it was "strategically important" to have operations in both Brazil and the US, the top two exporting countries and, according to the company, the "two most relevant countries in the chicken sector".
 
The two nations combined account for 30% of world consumption, 36% of production and nearly 70% of exports, the group said.
 
The deal follows persistent speculation of a deal between Doux and JBS over Frangosul, which is reported itself to have debts of some US$319 million, and to have mothballed two of its 10 Brazilian sites.
 
Doux three years ago sold its turkey operations in the Brazilian state of Rio Grande do Sul to Marfrig for BRL$65 million (US$35 million).
 
The retreat leaves Tyson as the only foreign company with considerable presence in Brazil's poultry sector.
 
JBS, which also has broiler operations in Mexico and Puerto Rico, will now boast group chicken capacity of nerly 9 million birds a day.
 
The group's shares closed down at 1.8% at BRL7.30 (US$3.79) in San Paulo.