2/22/2016

Oi to Petrobras Minority Holder Battles Erase Billions - Bloomberg Business

OitoPetrobrasMinorityHolderBattles
EraseBillions
ChristianaSciaudoneandJuliaLeite
April8,201410:33AMEDT

MinorityshareholdersinBrazilareescalatingafightforfairtreatment.Sofar,theyrelosing.
SecuritiesregulatorCVMlastmonthsidedwithOiSAcontrollingshareholdersinadisputeovera14.1
billionreaiscapitalincreaseprecedingamergerwithPortugalTelecomSGPSSA.Theboardofstaterun
oilproducerPetroleoBrasileiroSAremainsdominatedbygovernmentofficialsevenafterminorityholders
wonasecondseatlastweek.
ThetwocompaniesunderscorethestrugglesforsmallholdersinBrazil,whererecentactivisteffortshave
failedtodentthetraditionalcloutoflargefamiliesandinvestorgroups,saidJoaoNogueiraBatista,chief
executiveofficeroftheMergers&AcquisitionsCommittee.CVMsrulingintheOicasewilldilutethe
stockandhelpedpushitsmarketvaluelossto$1.3billionsinceOctober.
ItcallsintoquestionwhatrightsminorityshareholdershaveininvestinginBraziloverall,saidWalter
Piecyk,ananalystwithBTIGLLCinNewYork,citingtheOiruling.Itsendsaverypoormessage.
TempoCapital,whichledthefighttoblocktheOiPortugualTelecommerger,saidtheCVMsMarch25
rulingwasastepbackwardfortheregulationofBraziliancapitalmarkets.
ThedecisionshedslightontheneedtocreatestrongerandmoreeffectivemechanismstoprotectBrazilian
minorityshareholdersandhighercorporategovernancestandards,Temposaidinastatement.
ControllingshareholderTelemarParticipacoesSAdidntreturnemailrequestsforcomment.Oideclinedto
commentinanemail.CVMdeclinedtocomment.

StandUp
Brazilsbiggestphonecompany,Oiplunged11percentthedayaftertherulingandhasdeclined33percent
sincethemergerwasannouncedOct.2.

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Oi to Petrobras Minority Holder Battles Erase Billions - Bloomberg Business

OisminorityshareholderssawhowtheCVMdidntstandupfortheirrights,Piecyksaid.
Minorityinvestorshadfoughttoblockcontrollingshareholdersfromvotingonthecapitalincreaseandthe
valuationofassetsinvolvedinthemergerbecausethedealinvolvespayingoff4.5billionreaisinthe
controllinggroupsdebtinadditiontodilutingholdings.
Atthetimeofthedecision,CVMsaidmostofitsboardagreedthattheissueshouldbevotedonduringthe
shareholdermeetingandonthosegroundsmajorityinvestorscouldntbepreventedfromvoting.Theboard
alsosaidthattherewerentenoughelementstoprohibitthecontrollingshareholdersfromvoting,according
tothedecisionpostedonCVMswebsite.

PetrobrasTumbles
Petrobrashastumbled55percentsince2010,theyearstakeholdersfoughttostopa$70billionsharesale,
andasinvestorstrytoraiseagovernmentsetfuelpricecapthatcontributedto17.7billionreaisinrefining
losseslastyear.Petrobrasrose0.12percentto16.48reaisat11:30a.m.inSaoPaulotradingtoday.
AsmoreforeigninvestorsareluredtoBrazil,demandsforbettercorporategovernancearealsorising,said
CristianoGuerra,headofLatinAmericaandU.S.researchforISS.
Itsessentiallygrowingpainsinmanycases,GuerrasaidbytelephonefromRockville,Maryland.Most
companiesarestillcontrolledbylargefamilies,bylargegroups,butasminorityshareholdersaregrowingin
numberswereseeingalotoftheseregulationsandlawsneedtobetweaked.

NoClout
SmallinvestorsinPetrobras,whichisshoulderingbillionsofdollarsinfuelsubsidylosses,havefailedto
swaythegovernmenttoraisegasprices,whileindependentinvestorsarelockedinapowerstrugglewith
HRTParticipacoesemPetroleoSAovercontroloftheboard.CVMalsoruledagainstminorityshareholders
incasesincludingdrinkmakerInterbrewsmergerwithCia.deBebidasdasAmericas,nowknownas
AmbevSA,in2004.PetrobrasandHRTdeclinedtocommentviaemail.Ambevdeclinedtocomment.
SugarcaneprocessorCosanSAandsteelmakerUsinasSiderurgicasdeMinasGeraisSAhavealsobeen
pulledintodisputeswithminorityshareholdersinthepast13yearssincelawswerefirstchangedtoprotect
investors,andtheNovoMercado,alistingbodyforcompaniescommittedtobettercorporategovernance
practices,wascreated.Usiminasdeclinedtocommentviaemail.Cosandidntreturnarequestforcomment
viaemail.

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Oi to Petrobras Minority Holder Battles Erase Billions - Bloomberg Business

OutdatedLegislation
Thedisputesfrequentlystemfromoldercompaniesthatstillworkunderoutdatedlegislation,Batistasaid.
Priorto2001,companieswereallowedtoissuepreferredshareswithnovotingrights,andnotagalong
rightsandeithernodividendsornocapitalpaybackpriority.Nowtheymustallowbothfixeddividendsand
capitalpaybackpriority.Thelawcontinuestonotconfertagalongrightsforallshareholders,whileNovo
Mercadolistedcompaniesrequirethem,asdoestheU.S.
ThepeculiarityofBrazilversustheU.S.isthatherecontrolismoreconcentrated,saidRaphaelMartins,a
partneratFaoro&FucciAdvogados,whichrepresentedOiminorityshareholderTempoCapital.Theway
weprotectshareholderrightsisthroughthelegalsystem,whichisexpensiveandslow,ortheCVM,which
saysexistinglegislationdoesntgiveitpowerregardingshareholderrightsviolations.
Minorityshareholdershavehadsomewinsalongtheway,includingincreaseddisclosureandmoreboard
members,accordingtoJoaoLaudo,anassociatefromtheBrazilianInstituteofCorporateGovernance.
Today,youhaveamuchmorefavorablescenariointermsofprotectingtherightsofminorityholders,
LaudosaidinaphoneinterviewfromSaoPaulo.
Beforeit'shere,it'sontheBloombergTerminal.

OiSAPetroleoBrasileiroSABrazilBoardDirectorsCorporateGovernanceVotingRights

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