You’ve probably been following the bribery scandal that engulfed Brazil’s Batista family, the majority owners of JBS SA, the world’s largest protein company. You also likely know the Batista family put its Five Rivers Cattle Feeding unit and other assets up for sale to pay for the 10.3 billion reais (US$3.2 billion) fine it must pay over 25 years. The family’s J&F Investimentos SA, which controls JBS, hopes to raise at least eight billion reais through divestments.
JBS subsidiary JBS Food Canada owns and operates the former XL Foods’ beef processing plant in Brooks, Alta., which has an adjoining 75,000-head feedlot. As I was writing this, JBS announced the unit had reached an agreement to sell the feedlot and adjacent farmland (6,600 acres) to MCF Holdings Ltd. for C$50 million. That’s the equivalent of C$666 per head, which seems a hefty price.
Under terms of the agreement, MCF will continue to supply cattle to the Brooks plant. MCF Holdings is a subsidiary of Nilsson Brothers, Canada’s largest livestock operators. So the Nilssons regain ownership of the feedlot after selling it and the plant to JBS at the start of 2013.
No buyers have yet emerged for Five Rivers’ 11 U.S. feedlots. But J&F in mid-July said it had agreed to sell its majority stake in a footwear maker and was also in talks to sell a pulp maker. In another sale, Canada’s Brookfield Asset Management signed an exclusivity agreement to acquire power transmission lines owned by J&F for up to one billion reais (US$311 million).
Selling Five Rivers in the U.S. in one piece might be challenging. The 11 feedlots have a total one-time feeding capacity of 900,000 head. JBS USA Beef has a supply agreement to buy cattle from all of the feedlots. Such an agreement will likely continue, as it will in Brooks, even with the feedlots under different ownership.
With this in mind, it is possible an entity inside or outside the U.S. will see an opportunity to enter the feeding business. But if no one buys them all, JBS will likely attract several types of buyers. They include: those already in the business who want to add one or more feedlots for geographic diversity, those in the cattle/beef industry who want to own a feedlot to support a more integrated business model, those in an allied business such as ethanol production or corn processing.
JBS might be hoping to get at least US$200 million for the 12 feedlots. Based on my estimate, Cargill received US$237 per head when it sold its last two feedlots in April to U.S. ethanol producer Green Plains. JBS would receive US$231 million if it got that same price per head. Should it receive US$175 per head, it would receive US$171 million. The price per head will vary from feedlot to feedlot, depending on its location, condition, amount of land to be sold with the feedlot and other factors.
One question I initially posed to JBS was whether JBS might sell any beef processing plants linked with certain feedlots to get a sale. I mentioned the Brooks plant and plants in Arizona and Utah. JBS immediately responded by saying no JBS USA beef processing assets, including the three I mentioned, were under consideration for sale. JBS is not entertaining the bundling of plants to feedlots in the sales process for Five Rivers, JBS’s Cameron Bruett told me.
Ultimately, JBS’s ability to sell its U.S. feedlots will depend on JBS’s asking price and an entity or entities’ appetite for risk and ability to make money in the boom-or-bust cattle feeding business.