Eletrobras: The Rapporteur proposes a re-nationalization mechanism – 04/20/2020 – Market

Case Rapporteur dealing with Privatization of Eletrobras in TCU (Federal Board of Auditors), Minister Aroldo Cedraz, is proposing to change the original proposal that opens the way for re-nationalization of the company, if the federal government deems it strategic.

Cedras’ vote was made available to the other ministers a few hours before the trial, scheduled for Wednesday (20).

The change in the syllable deals with the so-called “poison pill” (poisonous pill, in the original English term).

at Poison pills are a common defensive measure in financial markets, taken by publicly traded companies to prevent a shareholder from suddenly becoming a majority, with a hostile view. In this case, an attempt is made to prevent a new observer from making decisions that are detrimental to other shareholders.

In the modeling presented by the BNDES (National Bank for Economic and Social Development), the new Eletrobras, after capitalization on the stock exchanges, will have “poison pills”. According to the proposed rule, the shareholder who exceeds certain limits of participation in the contribution will be penalized by the obligation to carry out a public offer to acquire the shares of other shareholders. The value of this offer will be three times higher than the historically high market price of the shares.

Those who had access to the documents call the “poison pill” an anti-Lola clause, referring to the truth previous president Luiz Inacio Lula da Silva, who leads the polls in the presidential elections, declared that the party does not support the process.. In an interview with a sheetLabor MP Gliese Hoffman said that if the party wins the election and the privatization of Eletrobras is completed, the process will be reviewed.

Judge Aroldo Cedraz agrees in his vote that the “poison pill”, as it was originally formulated, is important to avoid a hostile takeover of Eletrobras by a private investor, but feels that it would have a setback that cannot be ignored: the mechanism, like the proposal, would also apply to public authorities , which is not considered appropriate.

The assessment of the decision is that the State has guaranteed under the Constitution the privilege of restoring control of Eletrobras, if a strategic need justifies this decision.

Therefore, he proposes revising the “Toxic Pill” clause in order to preserve the right of the Federal Government, at any time, to reverse the privatization process of Eletrobras, upon payment of fair, but not exorbitant, amounts – to other shareholders.

This afternoon’s trial tends to generate heated courtroom debate.

Minister Vital do Rego Filho announced that he intends to seek an opinion, as he understands that he needs time to assess the vote of the Rapporteur, which was submitted at his discretion at the last minute.

In the previous ruling, Minister Rego questioned the formula for calculating the value of the state-owned company, the valuation of the company which would be worth R$130 billion and not the specified R$67 billion.

According to market analysts who follow the procedures, the process must be completed in the first half of the year, before the election campaign enters the decisive phase and alienates investors.

With a two-month hiatus, the trial may be delayed until the end of June, delaying the entire process. After the ruling in the TCU, it will still be necessary to follow the ritual preparation for the operation in the capital market. If the measures are extended until August, the privatization could be delayed until 2023.

The largest energy company in Latin America, Eletrobras is the owner or partner of most Important hydroelectric power stations in Brazil, such as Belo Monte And ovensand still accounts for approximately 44% of the country’s transportation system.

The sale on the stock exchanges seeks to weaken the union’s participation, which needs to decrease from 72% to 45%, raise funds to pay the grant to the state and turn the company into a corporation. No shareholder may own more than 10% of the total shares.