E-Malt.com News article: 2356

Brazil: Shareholders of Companhia de Bebidas das Americas (AmBev) pressed on March 16 the Chief Financial Officer Felipe Dutra to explain the company's decision to sell a controlling stake to Interbrew SA, which caused a one-third drop in preferred shares, Bloomberg reported on March 16. Dutra laid out why he thinks the deal adds value for minority shareholders, whose non-voting stock plummeted after Interbrew said March 3 it would buy control of Sao Paulo-based AmBev in a transaction valued at $11.2 billion. The controlling shareholders will get a premium of at least 60 % for their stock according to analysts including Jose Yordan at UBS Securities LLC in New York, Bloomberg posted.

“They were the controlling shareholders and they've taken everything for themselves -- but what did the market expect?'' said Joanne Irvine of Aberdeen Asset Management Plc in London, who holds AmBev shares. “Someone high up in Brazil has to come in and do something about the issue of shareholder rights because AmBev is going to leave a very bad taste in people's mouths.''

The terms of the transaction underscore the gulf separating classes of shareholders when control of Brazilian companies changes hands, said Aberdeen, who helps manage $5 billion in emerging market stocks. Investors in AmBev preferred shares had to accept dilution of their stock while the controlling group, led by billionaire Jorge Paulo Lemann, will net 3.3 billion euros ($4 billion) in Interbrew stock.

While AmBev's preferred shareholders may protest, there's little they can do about the deal as controlling shareholders acted in accord with Brazilian securities law, said Eliane Lustosa of the Brazilian Institute of Corporate Governance. “What we hope is that this event will open the eyes of institutional investors so that they use the firepower they have to determine better terms of good governance,'' said Lustosa, the former chief financial officer of Petros, the pension fund for workers at Petroleo Brasileiro SA, Brazil's biggest company.

As a result of the transaction with Interbrew, Lemann, an AmBev board member along with Carlos Alberto Sicupira and Marcel Telles, its co-chairman, will take about a 25 % stake in the combined company and name four members to the 14-member board. “From the very first moment, in the blink of an eye, you could see it was a bad deal,'' said Lucio Graccho, who helps manage about $620 million in stocks including the brewer's non- voting shares for HSBC Holdings Plc's Brazilian Asset Management unit.

The terms of the transaction call for Interbrew to issue new stock to exchange with Lemann and the other AmBev controlling shareholders for their 52.8 percent voting stake. Interbrew is paying the partners 61 percent more than the March 2 closing price of AmBev common shares, Jose Yordan, an analyst at UBS Securities LLC in New York, said in a report.

Under Brazilian regulations, other holders of the ordinary shares will get 80 % of the value paid for the controlling stake under so-called tag-along rights. No such rights apply to holders of preferred shares.

At the same time, AmBev will issue new preferred shares and assume $1.5 billion in debt to acquire Interbrew's North American assets including Canadian beermaker Labatt, a 70 percent stake in a U.S. distribution business and its 30 percent stake in the beer unit of Fomento Economico Mexicano SA, Mexico's biggest beverage maker. On Friday, Femsa opened court proceedings in the U.S., saying it didn't want Interbrew to pass control of their joint U.S. distribution business to AmBev.

“AmBev tried to sell this deal saying they're building a brewing business from Canada to Patagonia but the truth is we still don't really know enough about what we're getting,'' said Clecius Peixoto, who helps manage $9.5 billion in emerging market equities at Emerging Markets Management LLC in Arlington, Virginia. “We feel very, very let down and probably the managers and employees at AmBev feel the same way.''

In Mexico, companies seeking to acquire more than a 30 % stake in a company have to make a public offer in which they pay the same price for shares without voting rights as for stock with voting rights, shareholders, said Clementina Ramirez, deputy legal director at the Mexican Stock Exchange.

The Brazilian regulator's office didn't respond to requests for interviews.

In a news release issued on March 2, AmBev said any agreement with Interbrew would “ensure the adoption of equitable conditions in the transaction.'' That didn't happen, said Aberdeen's Irvine. The AmBev case has made clear the risks of investing in Brazil, said Irvine of Aberdeen. “You end up disappointed in AmBev and disappointed in Brazil for not having the adequate structure to stop this happening,'' she said. “In the end you can always choose to take your money elsewhere.''


18 March, 2004