Corruption and rotten meat: The meat company JBS overcomes all resistance and goes to Wall Street


What is now the world's largest food company began in the middle of the last century with a slaughterhouse in the Brazilian Wild West. In an area where there were hardly any inhabitants at the time, José Batista Sobrinho slaughtered cattle – right in the middle of the savannah pastures. He dried the salted meat in the sun and sold it to farmworkers.
NZZ.ch requires JavaScript for important functions. Your browser or ad blocker is currently preventing this.
Please adjust the settings.
In 1956, the government began construction of the capital, Brasilia, nearby. Zé Mineiro, as Batista was known, saw his opportunity. He supplied the construction workers with meat. And so the butcher shop became the JBS slaughterhouse—named after his initials.
From working in the slaughterhouse to the executive suiteThe business was lucrative and brought Batista wealth. His three sons, Wesley, Júnior, and Joesley, were put to work on the farm as children. They were already skinning cattle at the age of 13. As teenagers, they drove cattle trucks on country roads, negotiated with cattle ranchers, and bid at auctions. In 2004, they finally took over their father's business entirely and, within a few years, transformed it into the world's largest meat producer. JBS is now the world's largest food company by revenue – even ahead of traditional market leaders like Nestlé and Pepsico.
In mid-June, JBS went public in New York. Before the IPO, brothers Wesley and Joesley completely restructured the company. While the operational headquarters remain in São Paulo, they relocated the legal headquarters to the Netherlands and established the corporate holding company in Luxembourg.
For the IPO, they created a new share class ("Class B") with 10 votes per share. The publicly traded "Class A" shares, in contrast, carry only one vote per share. Financial experts at Barron's expect that the two brothers will soon secure 80 percent of the voting rights and almost half of the capital.
Until recently, it was unclear whether shareholders would go along with this disempowerment: Proxy advisors for institutional investors such as Glass Lewis and ISS in the US had opposed it. But when the Brazilian development bank BNDES, which currently holds an 18 percent stake in the group, dropped its opposition, the brothers were able to implement their ambitious plan.
"Our industry is very difficult – you need people who understand the business," says Guilherme Cavalcanti, CFO of JBS, justifying the brothers' unrestricted control. Due to their extensive experience in the meat industry, the Batistas understand the company's needs better than shareholders who are only interested in short-term profits. This is why other food companies also operate two share classes.
Complex meat marketIndeed, the Batistas understand their business like few others. Today, JBS produces and processes not only beef but also poultry, pork, fish, eggs, and plant-based meat. "We want to be number one or two worldwide in every industry we operate in," says Gilberto Tomazoni, CEO of JBS.
Denis Balibouse / Reuters
With 280,000 employees, the company has as many employees as Nestlé, for example. JBS generates half of its sales in the USA, followed by Brazil with a quarter; Australia, Asia, and Europe are also important markets.
The global market for animal protein is complex: JBS supplies its products to approximately 180 markets worldwide. Depending on the market, it sells the same products at dramatically different prices. In Brazil, for example, boiled beef is three times more expensive than tenderloin, as it is a popular barbecue specialty. Cow intestines, gizzards, and chicken feet are in demand in China, but hardly in demand in Europe.
Epidemics, scandals, wars, or political disputes between countries can make markets difficult to access overnight. Food companies are often unable to pass on rising prices for animal feed such as corn to customers.
JBS's sales have grown by 20 percent since 2020, but its profit margin has shrunk by half. To increase profits, JBS must invest more in processing and brands. Chief Financial Officer Cavalcanti announced that JBS intends to generate a larger share of its sales from ready meals in the future.
To make the necessary investments, the former provincial butchers now have access to the world's largest capital market, Wall Street. With revenues of $77 billion last year and a market capitalization of approximately $30 billion, the company will soon be included in the S&P 500 index of the 500 largest corporations in the United States. Investors who invest in indexes will then also be able to buy shares of the Brazilian company.
The Batistas have long been working to forge a global conglomerate centered on the protein business as a money-making engine: The holding company J&F Investimentos – which owns almost 50 percent of JBS – is already a broadly diversified corporation active in sectors such as pulp, energy, finance, consumer goods, mining, media, real estate, and education. This diversification is intended to enable the group to generate stable returns across various economic sectors, offsetting the volatile meat business.
Nobody wanted to help the hardened outsidersNo one would have thought this rise possible until recently. But it's been planned long in advance. As early as 2007, when they took JBS public on the Brazilian stock exchange, the Batistas talked about their plans to tap into the American financial market for their global expansion. But no one took the cowboys seriously. In Brazil, few were willing to financially support the hard-bitten up-and-comers. The Batistas had made numerous enemies during their rise to power.
There are few other private corporations in Brazil that have been as frequently and deeply involved in scandals and legal proceedings as JBS. In 2017, it seemed at times as if the Batistas' lucky streak had finally come to an end. A rotten meat scandal damaged the company's reputation in Brazil. It was proven that JBS had exported meat from cattle raised on burned-down rainforest areas. Foreign supermarkets removed JBS products from their shelves.
Ueslei Marcelino / Reuters
In addition, both brothers were sentenced to several months in prison starting in September 2017. They admitted to systematically bribing politicians and judges to obtain government funding. The state development bank BNDES had provided $4 billion to finance the Brazilian company's expansion abroad, primarily in the United States, where JBS acquired competitor Swift and later the chicken processor Pilgrim's Pride.
Participating politicians always received a share of the financing. For Joesley Batista, buying politicians was part of the deal. "It works like this: You do your business. The politicians look at it and create a problem. Then you pay them to solve the problem," he explained.
JBS later agreed to pay the equivalent of $2 billion in fines with Brazilian prosecutors. The Batistas also accepted fines in the United States for bribery and price-fixing. Overall, the company was ordered to pay the highest amount of compensation ever paid by a company for corruption worldwide.
But the wind has now shifted in JBS's favor. A judge at Brazil's Supreme Court suspended the fine until 2023. His reasoning was that the settlement may have been entered into involuntarily.
But JBS's reputation remains tarnished. JBS's listing on the New York Stock Exchange sends the wrong message, criticized Maíra Martini, global CEO of Transparency International, on X. Companies with a long history of corruption, environmental destruction, and political manipulation should not be given easy access to global capital markets. "Investors deserve transparency. JBS should be more tightly controlled, not rewarded with prestige."
The Batistas are also encountering resistance in the United States. They've become accustomed to this since they began acquiring one traditional company after another in 2007. Last year, several U.S. members of Congress, including current Secretary of State Marco Rubio, called on competition authorities to examine the potentially negative effects of the JBS IPO on North American cattle ranchers.
Investors are also hesitant. The stock is trading at a significant discount to American competitors such as Tyson, Hormel, and McCormick. The Batistas are trying to resolve the opposition in their usual way. Pilgrim's Pride, the American subsidiary of JBS, wrote a check for $5 million for Donald Trump's inauguration. It was the largest donation the newly elected president received from a corporation.
nzz.ch