December 6, 2016 / 7:15 PM / 3 years ago

JBS delivers a cleaner cut on second carve-up

A steak is seen at the Eataly food market store in Milan, Italy, March 20, 2016. REUTERS/Stefano Rellandini/File Photo - RTX2CX1Z

CHICAGO (Reuters Breakingviews) - JBS sharpened its carve-up blade. The $8 billion Brazilian meatpacker filed on Monday to list its overseas business again after a government shareholder nixed an earlier plan that could have put the Sao Paulo-based rump under control of a foreign parent. The new deal should lower capital costs, but with fewer complications.

An international acquisition spree built the company controlled by billionaire brothers Joesley and Wesley Batista into the world’s biggest meat merchant. Gobbling up the likes of U.S. poultry producer Pilgrim’s Pride, however, larded JBS with debt.

About 80 percent of its sales, and most of its $16 billion or so of total borrowings, are denominated in dollars. The company’s base is in Brazil, where a gyrating economy and currency mean it pays a higher cost of capital.

When JBS unveiled in May a plan to spin off its international operations to shareholders, its stock rose by over a fifth. That would have created a Dublin-based, New York-listed subsidiary. It also could have resulted in the new overseas group eventually assuming total control. Brazilian development bank BNDES, which is a 20 percent owner of JBS, vetoed the plan in a surprise decision that sent the shares reeling.

Under the new arrangement, which doesn’t require BNDES approval, JBS will retain control of a new Dutch-based international holding company with a New York listing. The IPO proceeds, initially estimated at up to $500 million in the registration filing, will be used to pay down debt. JBS also hopes to transfer bonds to the U.S.-listed entity.

After initially failing to win over one Brazilian owner, JBS now has the task of wooing many investors far and wide. Floating 15 percent of the international operations at 6.5 times EBITDA, a discount to U.S. rival Tyson Foods, could raise about $1.5 billion. That would reduce net debt at the parent company to around 2.8 times EBITDA by the end of 2017 from over three times, based on Itaú estimates. Anticipated leverage of three times EBITDA for the new international arm, meanwhile, should be manageable. For JBS and potential new shareholders, this may turn out to be the prime cut.


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