JBS Clears Inalca Air

JBS’s sale of a 50% stake in joint venture Inalca to partner Cremonini for $304m clears up uncertainty about a put option but does not change the balance sheet, according to Brazil-based equity analysts. The sale price is the same amount JBS paid for it in 2008. Inalca, which represented less than 1% of JBS’ total revenues according to analysts. Inalca, which has been excluded from JBS financial statements for several quarters, is an Italian beef processing business. The stake had been a minor negative for the JBS stock price, according to an analyst, due to a put held by Cremonini on its 50% stake. “They were not getting along very well,” the analyst says, referring to JBS and Cremoni. “It has been weighing on the shares for some time.” Under the terms of the agreement stemming from JBS’s 2008 investment, the Brazilian beef company would have been obligated to acquire the remaining stake in Inalca for EUR450m if it reached EUR90m in Ebitda, which Cremonini claims it had. JBS calculated Inalca had only reached EUR30m in Ebitda. Another analyst says clearing up uncertainty surrounding about the Inalca stake, though a relatively minor element on its balance sheet, is a smart move for JBS. “It’s a lot of money,” says the second analyst. “But it’s nothing compared to [JBS’] valuation. But to write a check for EUR450m in 1 month is quite tricky. Especially when they faced so many issues to raise $1bn in the last follow-on,” he adds. JBS sold BRL1.84bn in a follow-on in April 2010. The Brazilian beef company’s shares reacted positively to Friday’s announcement, closing up 0.48% at BRL6.23. JBS also announced it acquired the 30% stake in Rigamonti it did not already own. Rigamonti is an Italian cold cut producer. Both analysts say they expect JBS to continue to make acquisitions in the European meat sector, but will likely target distribution assets rather than production facilities.