(Recasts throughout to lead with prosecutors rejecting new settlement offer)
By Leonardo Goy and Bruno Federowski
BRASILIA/SAO PAULO, May 24 (Reuters) - JBS SA's controlling shareholder, J&F Investimentos, proposed paying a 4 billion reais ($1.22 billion) fine as part of a leniency deal to settle Brazilian bribery and corruption charges, but the offer was rejected, a representative of the public prosecutors' office said on Wednesday.
The fine proposal is quadruple of what the holding company J&F had offered last week after bombshell allegations that its owners Joesley and Wesley Batista had bribed scores of Brazilian politicians but still short of the 11.2 billion reais prosecutors are seeking.
Joesley Batista, who is also JBS's chairman, made headlines last week after the revelation that he had recorded Brazilian President Michel Temer appearing to back the payment of bribes to a jailed politician. Temer has come under pressure to resign but he has denied the allegations and insisted he will not step down voluntarily.
Asked about a previous Wall Street Journal story saying the group was proposing to pay $1.3 billion, J&F said it would not be commenting on the plea bargain until an agreement was reached.
The plea negotiations are being closely watched by investors in JBS, whose shares have come under heavy pressure over the last week because of concern the blowback from the scandal could limit its funding options.
The bribery scandal is just one of several legal hazards facing the group, which mushroomed from a regional Brazilian slaughterhouse to the world's largest protein processor with the help of some 8 billion reais in government support.
JBS Chief Executive Wesley Batista arrived at the public prosecutor's office in Brasilia earlier in the afternoon and left by early evening. The prosecutors' office said there was no agreement today, but that "progress was made" and negotiations would continue.
Brazilian rules for corporate leniency deals call for fines of somewhere between 0.1 percent and 20 percent of their annual sales. The prosecutor's proposed 11.2 billion real fine would be equivalent to 5.8 percent of J&F's group revenue, including JBS and other companies J&F controls, ranging from a bank to a pulp producer.
Shares in another J&F-controlled company, Alpargatas SA , the maker of Havaianas flip flops, gained 5 percent on Wednesday, bolstered by reports from Reuters and elsewhere it was among assets that J&F had considered selling.
Banco Bradesco SA's investment banking unit, which J&F hired to help it sell another asset, dairy company Fábrica de Produtos Alimentícios Vigor SA, had also been advising the family on plans to merge Alpargatas' different classes of stock into common shares, three people with direct knowledge of the situation told Reuters on Tuesday.
Alpargatas said late on Tuesday that plan had been scrapped. Moves to cancel such share restructurings at Brazilian companies have in the past been preludes to asset sales.
Alpargatas, which J&F acquired from construction conglomerate Camargo Correa SA two-and-a-half years ago for 2.7 billion reais, could easily attract suitors and may now be worth more than 3 billion reais, one of the people with knowledge of the situation told Reuters.
JBS shares rose 2.3 percent, adding to gains of around 10 percent on Tuesday.
"Asset sales by J&F could bolster its cash situation, indirectly helping JBS," an equities trader from a major foreign bank said. "Still, there's a lot of uncertainty over what could be sold and for how much." ($1 = 3.2731 reais) (Additional reporting by Tatiana Bautzer; Writing by Christian Plumb; Editing by Andrew Hay)