Batista brothers resign
May 31, 2017
JBS South America, Board of Directors Chairman, Joesley Batista, and his brother, Wesley resigned from their family's multi-billion dollar international meat processing company last week after word of their plea bargain was made public.
The two recently entered into a plea bargain deal that accused Brazil's President Michel Temer of endorsing the bribing of a witness in the meat scandal. The brothers' testimony in the court case has unleashed a political crisis, alleging that they bribed hundreds of politicians, according to reports.
Last March, JBS S.A. was drug into a tainted meat scandal. Despite hundreds of court orders issued, the company claims no wrong doing by executives.
"There are no allegations in the judge's order that JBS or its executive management violated food safety or product quality standards or engaged in any wrongdoing. The investigation is focused on the actions of Brazilian Federal Meat Inspectors. Accusations regarding product quality issues have been inappropriately linked to JBS," said Cameron Bruett, JBS spokesperson.
The testimony, first leaked to Brazilian newspapers, told investigators of recorded conversations with Temer, allegedly approving the bribes.
Brazil's Supreme Court later released testimony from Batista, detailing he and other JBS S.A. executives gave at least $2.2 million in bribes to Temer. Batista also claimed in testimony for a plea deal that he gave millions more in bribes to Brazil's last two presidents through off-shore accounts, Dow Jones reported.
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According to reports, Temer is refusing to resign, saying the claims by JBS' leaders are false, and has asked authorities to investigate whether the recordings were edited. Brazil's Supreme Court authorized an investigation into the allegations against Temer.
Batista's testimony followed on the heels of another investigation from Brazil federal police, dubbed Operation Bullish, looking into loans made by the National Economic and Social Development Bank (BNDES) through its subsidiary BNDESPAR to "…a large company of the branch of animal protein…" according to a statement on the agency's web site.
Law enforcement authorities executed 37 mandatory enforcement orders and 20 search and seizure orders.
In a statement, JBS S.A. said: "JBS has always conducted its relationships with public and private banks in a professional and transparent manner. All BNDES investment in JBS was made through BNDESPar, the investment arm of BNDES, in accordance with all relevant market rules and legal requirements. These investments were carried out under the supervision of the Brazilian Securities and Exchange Commission (CVM) and in accordance with Brazilian capital market legislation. The investments are public and available on the CVM website and the JBS investor relations website."
JBS S.A. released a notice to the market on its website stating that seven executives had reached a plea deal with prosecutors in return for a fine and cooperation. Batista's plea agreement, according to JBS Board of Directors, includes the Batista family paying 100 percent of the settlement.
The financial penalty will be paid by J&F Investimentos, which is majority owned by the Batista family, who have said they will bear 100 percent of the cost of the settlement. JBS says it will have no impact on the operations of the JBS group. The penalty is $3.2 billion, adjusted for inflation and payable over a period of 25 years. Prosecutors calculate that over the 25-year period, J&F would have paid the equivalent of $6.35 billion in the leniency fine, considering future corrections by Brazil's inflation index IPCA.
The fine is the largest ever in a leniency agreement worldwide, according to a statement by the Prosecutor's Office. J&F will pay the equivalent of 5.62 percent of its annual revenue.
"This settlement is an important step forward as it removes uncertainty for our customers, suppliers, team members, shareholders and lenders. We can now focus on the future," Farahat said in a statement. "We are committed to taking the appropriate steps to implement best-in-class governance and compliance standards, and are focused on getting back to business as usual, continuing to provide the excellent products and services our customers and consumers have come to expect and enjoy, further developing our relationships with our suppliers, working closely with our 235,000 team members worldwide, and delivering strong financial performance for our shareholders."
A total of $2.54 billion of the fine will be distributed to pension funds Funcef and Petros (25 percent each), the National Bank for Economic and Social Development (25 percent), FGTS worker severance fund (6.25 percent), Caixa Econômica federal bank (6.25 percent) and a federal government general fund (12.5 percent).
The remaining $730 million will be paid through social projects focused on education, health and corruption prevention.
But this still may not be the end of it. Brazilian investigators have announced new probes into potential insider trading by JBS executives, separate from Temer and the bribery case. According to reports, authorities are looking into suspicious trades made by the company's owners.
While JBS is hoping to put all of the scandals in the history books, the company is starting a new chapter, at least on the board of directors.
According to a JBS statement, Joesley Batista resigned as chairman and member of the board. The Board of Directors unanimously elected Tarek Farahat as Batista's replacement.
Farahat, has worked for Procter & Gamble for 26 years, serving in a number of leadership positions in several regions around the globe, including the Middle East, Europe and Latin America. From 2006-12, he served as president of P&G Brazil. In 2012, he became president of P&G Latin America and an officer of the company's executive board. Farahat has been a member of the Board of Directors of JBS since 2013 and has served as global president of Marketing and Innovation since 2015.
In the same meeting, José Batista Sobrinho was unanimously elected vice chairman of the Board.
The Board also ratified the creation of a Governance Committee, which will be led by Farahat and whose main objective will be to implement global best practices in corporate governance and compliance at JBS.
"Governance is my utmost priority. We will work hard to restore trust with the market and protect the more than 235,000 families that are part of JBS. There is a significant amount of work to be done in order to regain the trust of our stakeholders," states Farahat.
"We remain focused on offering consumers the highest quality products and services while maintaining a close partnership with our suppliers and clients, and supporting our more than 235,000 team members worldwide," adds Farahat.
But the scandal has already taken its toll on Brazil, wreaking havoc on the country's exports, and on Brazil's stock market.
"After a week of crippling corruption revelations, the world's largest meatpacking company JBS SA tanked more than 30 percent in Brazil's stock market Monday. It's the stock's worst drop ever in a single day," CNN Money reported on May 22.
JBS S.A. released a shareholder presentation on its food businesses, showing 50 percent of the company's total revenue comes from U.S. operations, while 15 percent comes from Brazil and 14 percent in Asia. According to the report, JBS beef, pork and poultry operations in the U.S. and Canada generated $33.9 billion in sales in 2016.
JBS slaughters 29,000 cattle every day in the U.S. and 4,200 in Canada. The company owns 11 feedlots in the U.S. with a capacity of 900,000 head, as well as one Canadian feedlot with 75,000-head capacity.
Through Pilgrim's Pride, JBS also processes 6.6 million birds a day in the U.S. through 25 processing facilities. On the pork side, JBS processes 90,000 hogs a day in the U.S. and also operates five feed mills.