Brazil Food Co JBS Fast Becoming Turnaround Specialist

If a global food-business asset is distressed, then Brazilian beef major JBS just might be interested in having a look at it.

The country's leading beef company, JBS SA (JBSS3.BR) has exploded onto the world meatpacking scene over the last four years, thanks to a number of strategic acquisitions, many of them troubled companies looking to sell assets to pay debt.

Now, according to investment bankers close to a possible U.S. deal, JBS is in talks with Pilgrim's Pride Corp. (PGPDQ), the Texas-based chicken company that filed for bankruptcy protection in December.

"They've become very good at corporate turnarounds and we have two years to look back at the success of their Swift acquisition for evidence of that," said Soummo Mukherjee, a food industry analyst at Moody's Investors Service in Sao Paulo.

JBS bought Swift & Co. of Greeley, Colo., for around $225 million in 2007. Swift had been struggling with its beef business for years. When U.S. federal agents raided six of its plants on suspicion of immigration-law violations, it cost the company around $50 million and eventually led Swift to sell to JBS. The acquisition made JBS the world's largest beef company, with annual revenue of $18 billion.

"JBS's arrival worked out for the best for Swift, because the company had a negative Ebitda margin before the acquisition and is now positive," said Denise Messer, an equity analyst at the Brascan brokerage in Sao Paulo. Ebitda refers to earnings before interest, taxes, depreciation and amortization.

After buying Swift, JBS was back at it in the U.S. a year later, acquiring the beef-processing unit of Smithfield Foods Inc. (SFD) for $565 million.

JBS's credit rating from Moody's is B1 with a stable outlook, four notches below investment grade. By comparison, U.S. rival Tyson Foods Inc. (TSN) is at Ba3, one notch above JBS, but with a negative outlook, according to Moody's.

"JBS has the cash and their credit rating is pretty much where the entire sector lies, only perhaps a tad better," Mukherjee said.

"They have untapped credit facilities in the U.S. They have this $2 billion [initial public offering] they're planning for later this year. JBS manages to find money and their debt position is okay," he said.

From 1993 to 2005, JBS acquired 12 meat-processing companies in Brazil. It embarked on its first overseas acquisition in 2005, buying Argentine meat packer Swift Armour.

In 2006, the Brazilian company changed its name from Grupo Friboi to JBS, after founder Jose Batista Sobrinho. Batista started the company by buying and selling cattle in the Brazilian state of Goias some 50 years ago. His three sons now run the company, taking it public on the Brazilian Stock Exchange in March 2007, the first meat company to do so. The offering raised around $800 million and provided the extra muscle needed to expand at a time when demand for beef was on the upswing around the world.

In 2006, the company's net revenue was $1.8 billion. But for the 12 months ending in June 2009, JBS's net revenue was $18 billion.

The company is now looking to list American Depositary Receipts in New York, with the possibility of bringing in more money to JBS's U.S. holding company.

"It's an interesting funding alternative and confirms the company's strategy to become more powerful in the U.S. market," said Joao Brugger, an equities manager at Leme Investments.

"We are getting back to regular growth," JBS Chief Executive Joesley Mendonca Batista said in a conference call with investors in August. "We intend to grow organically and through acquisitions."

JBS didn't confirm whether it was talking with Pilgrim's Pride in particular, but a person within JBS said it is often contacted by distressed players looking to sell assets.

Brazil is home to some of the world's leading food companies. Its agricultural resources have turned locals such as JBS into multinationals, and turned names such as Sadia SA (SDA) and Perdigao SA, which are merging to form Brasil Foods SA (PDA), into respected brands in markets stretching from Europe to the Middle East.

-By Kenneth Rapoza and Tony Danby, Dow Jones Newswires, 5511-2847-4541, [e-mail]