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Vale makes biggest governance overhaul since privatisation

Por: Latin LawyerImprimirVisualizar em PDF

Pinheiro Neto Advogados and Vieira Rezende Advogados are helping some of the biggest shareholders in Vale end their controlling interest over the Brazilian mining company, in a major corporate shakeup designed to increase transparency ahead of Vale's listing on BM&F Bovespa's Novo Mercado.

Banco Bradesco holding company and key shareholder Bradespar is relying on Pinheiro Neto, while Brazilian steel maker Litel and its subsidiary Litela (also top shareholders) are seeking advice from Vieira Rezende. Schroeder & Valverde is thought to be advising Japanese industrial conglomerate and major shareholder Mitsui, but this could not be confirmed prior to publication. Another leading shareholder, Bndesepar, which is owned by Brazilian national development bank BNDES, is relying on its in-house team.

Controlling shareholders reached an agreement on 20 February that calls for the conversion of all Vale share classes into common stock, levelling the playing field for investors. Valepar, which is the holding company Vale's biggest shareholders use to control it, will then be absorbed into Vale. The entire deal is expected to close in November and requires approval from Vale's preferred shareholders.

While the deal is meant to reduce outsider control over Vale, the Brazilian government will keep a so-called golden share in the company. This legal tool allows it to prevent hostile takeovers.

The transaction is the biggest shakeup of Vale's corporate structure since its privatisation in 1997. It is also the first time in 10 years a major Brazilian company with a clear group of controlling shareholders has voluntarily dispersed corporate ownership (airplane company Embraer pursued a similar strategy in 2006). "The rise of dispersed ownership companies, which is the norm in more developed capital markets like the US and UK is very unusual in Brazil," notes Claudio Guerreiro of Vieira Rezende. "We hope that this transaction inspires other companies to follow the same path."

Cleaning up Vale's corporate structure is essential for its inclusion in BM&F Bovespa's Novo Mercado. The São Paulo stock exchange's special listing only admits companies that commit themselves voluntarily to corporate governance practices that go beyond those required by the law. Novo Mercado's goal is to make its listed companies more attractive to investors by creating transparent corporate governance structures.

Vale's corporate governance shakeup also attempts to dispel investor concerns over government meddling. "There have been rumours about political influence in Vale since its privatisation, but this transaction will create a corporation with no controlling shareholder, avoiding that risk," says Alberto Vieira, another partner at Vieira Rezende.

Rumours of government interference often centred on the appointment of Vale's top officers. In one of the more prominent cases, former Vale CEO Roger Agnelli was sacked in 2011 after firing some 2,000 workers. The layoffs and bad publicity annoyed then-President Luiz Inácio Lula da Silva.

Some news outlets have suggested the government is still interfering in Vale, even after news of the corporate shakeup broke last week. On Friday, Vale announced its current CEO Murilo Ferreira would step down in May, which is before the ownership changes come into effect. Bloomberg suggested his removal was a final political power play and cited local analysts. Brazil's presidency did not respond to Bloomberg prior to publication.

Confidence in Vale's new corporate governance model is important. Vale suffered an annual net loss of over US$12 billion in 2015 after falling global commodity prices and slow Chinese growth hit profits hard. Its situation has since improved, but fourth quarter profits in 2016 fell well short of expectations. Vale shareholders now hope its listing on the Novo Mercado will bolster the company's return to form.

Counsel to Bradespar

Pinheiro Neto Advogados

Partner Fernando Zorzo and associate Luiz Felipe Fleury


Counsel to Litel Participações and Litela Participações

Vieira Rezende Advogados

Partners Claudio Guerreiro and Alberto Vieira, and associates Danielle Nantes and Carolina Liers

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