Exclusive: Brazil state bank seeks to bring down the beef king it crowned

Reuters News
Posted: Aug 25, 2017 6:07 AM

By Guillermo Parra-Bernal

SAO PAULO (Reuters) - Brazilian state development bank BNDES helped JBS SA Chief Executive Officer Wesley Batista rise from a backcountry butcher into the world's most powerful meatpacking tycoon. Now the lender is doing everything it can to boot him from the company.

A May plea-bargain deal that exposed the propensity of Batista's billionaire family for bribing politicians led the bank's BNDES Participações SA investment arm to seek his removal from JBS. BNDES blamed his conduct for a 28 percent plunge in the company's stock this year.

Both sides are ramping up their efforts to sway JBS investors ahead of a Sept. 1 shareholder meeting on the fate of Batista, who has led the food processor since he took over from his younger brother Joesley in January 2011.

The bank has a 21 percent stake in JBS, while Wesley and Joesley Batista control 42 percent.

The showdown is a reminder of the Brazilian government's once-cozy ties with JBS and the Batistas as well as the support Wesley still has among some shareholders. Besides whether to oust him as CEO, shareholders will also vote on resolutions to sue him and other executives, plus a proposal to give management a pay raise.

While the result is hard to predict, almost a dozen bankers, company insiders and shareholders asking to remain anonymous said they had grown skeptical of Batista's argument, made in investor meetings in New York this month, that he is uniquely able to complete two upcoming asset sales and list a U.S. food subsidiary next year.

In those meetings, Batista, 47, stressed his success in recently clinching a $6.5 billion debt refinancing deal and securing cattle from ranchers despite their concern that his plea deal would pinch JBS's cash, investors said.

At the same time, Batista has suggested he is open to stepping down once he has finished the slate of deals on his agenda, three sources said. He also told them third-quarter results could be among the strongest in JBS's history because of solid U.S. operations and a recovery in food processing arm Seara.

In a statement to Reuters, JBS said it "has worked intensely to adopt several measures looking to protect the best interests of the company and shareholders." It declined to comment further.

While some investors praised Batista's leadership skills, one said a rift with BNDES could "draw blood" if he stays. Minority JBS shareholders include U.S. retirement funds and mutual funds like Fidelity Investments and Vanguard Group.

JBS shares added 3 percent to 8.68 reais in midmorning trading in São Paulo. Over the past month, the stock has recovered sharply with a 16 percent gain.

BNDES representatives have been aggressively trying to convince investors that Batista was not suited to run JBS, four people familiar the bank's strategy said. If needed, the bank could ask securities watchdog CVM to bar the Batistas from casting ballots in the Sept. 1 assembly, one of them said.


Still, the CEO's departure could take place in a gradual and orderly way, BNDES President Paulo Rabello de Castro told reporters on Aug. 8. State-controlled bank Caixa Econômica Federal, which has 5 percent of JBS, is likely to vote in line with BNDES, he noted.

Another source said BNDES did not oppose Batista joining the company's new executive committee, which oversees strategy but is not involved with day-to-day operations.

This week, proxy advisory firm Institutional Shareholder Services Inc recommended JBS shareholders vote to sue Batista and against plans to increase pay. BNDES, the bank's investment arm known as BNDESPar and Caixa Econômica declined to comment.

One hurdle to the ouster plan was a lack of strong potential replacements, some bankers and investors said. Still, BNDES could endorse Chairman Tarek Farahat as a potential successor, said one person familiar with the bank's strategy.

Some investors suggested that BNDES, as a state bank run by an appointee of Brazilian President Michel Temer, might have a conflict of interest. In the Batistas' plea bargain, Temer was accused of working to obstruct a corruption probe. He has repeatedly denied any wrongdoing.

"Batista could still draw investor support because it's not clear what the alternative BNDES plan is, and no one wants the risk of an uncontrolled change," another investor said.

BNDES's dual roles as representative of the scandal-plagued government and a creditor and shareholder of JBS are "suspicious," one investor said. Most lenders that took part in JBS's refinancing deal are discreetly siding with the BNDES, as Batista's vow to downsize the company is "set in stone," said a banking executive who participated in the process.

JBS, which grew through a series of self-financed local takeovers, began leaning heavily on BNDES in 2005, when Joesley Batista pitched bank officials on making the company a dominant global player, he told prosecutors in May.

The company received more than $3 billion from BNDES in the form of two successive capital injections and a convertible debt issuance that the bank eventually exercised. JBS used that money to buy rivals in the United States and elsewhere over the past decade.

"It was in that context that the idea of creating a great Brazilian multinational firm was given birth," Joesley Batista told prosecutors in taped testimony dated May 3. Without BNDES, "it wouldn't have happened so fast."

(Additional reporting by Rodrigo Viga Gaier in Rio de Janeiro and Tatiana Bautzer in São Paulo; Editing by Christian Plumb, Andrew Hay and Lisa Von Ahn)