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Opinion: the fly in JBS's $29bn ointment

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Shareholders shouldn't get too carried away with JBS's daring double deal.

The right-and-left of acquisitions -Brazilian peer Bertin and America's Pilgrim's Pride - certainly offers plenty to cheer. That's why investors have added R$1.73bn (US$960m) to the meat giant's market capitalisation since the world's biggest meat group unveiled the takeovers.

But Wesley Batista's bold shopping spree may not have ticked every box.

Good prices

Sure, Mr Batista deserves plenty of applause. He has managed to buy control of a cleaned-up Pilgrim's Pride, America's second biggest chicken group, for a pretty good price.

He has bought control while paying a lower multiple of earnings before interest, tax, depreciation and amortisation (ebitda) than JBS was trading on.

He hasn't managed that trick with Bertin, which has gone for about 12.4 times ebitda, two points higher than JBS was trading at.

Even so, he doesn't look to have paid an extortionate premium for taking out a major competitor.

Smiles all round

And Mr Batista has done it without ruffling too many feathers. The deal has been blessed by the Pilgrim's father, Bo Pilgrim, and looks unlikely to stumble on antitrust grounds, as JBS's last crack at a US target, National Beef Packing, did earlier this year.

The deals have even had the blessing of rating agencies. Both Fitch and Standard & Poor's are considering upgrading JBS's credit rating.

That's some feat for a company which had appeared to have little scope left for deals after running up sizeable debts from its last acquisitions.

Levers of power

The snag is how Mr Batista plans to run what he claims is now the world's biggest protein group, with sales of nearly US$29bn.

Rather than enjoying the luxury of being the group's biggest investor, he will now have to share power, to some extent, with the Bertin family, who founded the Bertin group some 30 years ago.

The Batistas and the Bertins will be joint shareholders in a new holding company that will control JBS.

They might get on fine. But experience of these so-called Chinese box structures elsewhere - such as in Italy's Telecom Italia, where the Benetton knitwear family got bruised - shows that they can become a forum for feuds between shareholders rather than vehicles for pushing a company forward.

Decisive leadership is exactly what JBS needs if it is to weld successfully its new parts together.

Investors considering the US$2.5bn cash call JBS Mr Batista needs to pay for his spree might want to get the lowdown on the Batista-Bertin shareholder pact before signing any cheques.

The JBS control structure. Source: JBS presentation


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