3/27/2013

Re: JBS Swift & Co

Diagnosis: JBS, the Brazilian meatpacking company began its plan for global expansion by purchasing three American beef processing companies, in addition to the purchase of an Australian beef company and 50% stake in the Italian meat company. These multiple acquisitions and mergers failed to articulate the company’s initial vision and philosophy, which is as follows: “We focus only on what we can control, and forget the rest.” The biggest problem that JBS is facing is that it is simply taking on too many acquisitions and mergers than they could actually handle in a short period of time, which caused the company itself to result into more debt liability than it could financially handle. I personally believe if this problem is left unaddressed, I believe the company will be having operational difficulties and start gaining more debt because of its inability to financially handle such big size of acquisitions and mergers.

Analysis: Although the company focus may seem logic to others, the analyst didn’t think its newly acquired debt was good for its future. Due to more perceived risk of the industry, the public perceptions of JBS’s acquisitions were also affected. The investors for the company couldn’t foresee the company’s potential just by simply looking at its balance sheet and income statement. With criticism from analysts who felt that JBS had “bitten off more than it could chew’’ By using the SWOT analysis, we noticed that the Strength for JBS is that its market shares became larger i.e. increased economies of size, a cost advantage obtained by producing more cattle. Larger plants with higher capacity could now afford to pay slightly higher prices to suppliers for their cattle, which lead to cattle producers also benefiting from this increase in production.. For its Weakness, One of the major weaknesses of the industry include the strong market power of each individual company, which leads to producers having fewer distribution networks, ultimately resulting in less control of the meat packers. For its Opportunity, considering its size of expansion, its revenue will become larger since the increase in sales due to expansion. For its Threat, I would say its continuously increase of liability would gradually cause the business to go out of business in one day.

Recommendation: I believe JBS should follow their core value that they should keep focusing on what they can control and forget the rest i.e. JBS should maintain a stable position in the existing market. Furthermore, instead of going global right away, it should definitely capture a bigger percentage of their current meat market and make sure they were completely established before any acquisition and mergers with any other firms and corporations. In its plan for global expansion, JBS decided to purchase an Australian beef company, 50% stake in an Italian meat company, as well as three more American beef processing plants. They expanded globally at such a rapid pace, instead of focusing on the current US market competition. Therefore, its rivalry was weakened, as its main focus became divided between the current US market and the global beef market.

Outcomes: If JBS acts on my recommendation, its growth would be growing step-by-step slowly; therefore, the company would become more stable in the US market and it would be able to acquire and merge with other companies. I believe in the long run, whether in its US market or in its global market, the company wouldn’t be facing or suffering such a big financial crisis or debt liability if they were already strong enough to handle things like that. Furthermore, besides JBS being more able to sustain the economy issues, their market share, earning per share, and revenue will all increase.