The instability of Petrobras’ actions this week shows how much the actions of a single controller – in this case, the government – can affect a company. This is one of the reasons why in the Eletrobras privatization process, rules were created to prevent a single shareholder from determining the company’s direction.
See below why, even keeping most of Eletrobras’ shares, the government is no longer the company’s controller and how some rules make an eventual attempt in the future to make the electric company a state-owned company more expensive.
Privatization via capitalization
To privatize Eletrobras, the government did not put the company up for sale at auction, as has happened in other cases, such as the privatization of state-owned telecommunications company Embratel, steelmaker CSN, or mining company Vale, for example.
The model used to transfer control of Eletrobras from the State to the private sector was an offer of new common shares (ON), which give the right to vote, together with the sale of part of the shares that were held by the Federal Government.
With the increase in the base of these shares, the government no longer holds more than 50% of the voting interest.
Participation in the voting capital (ON shares) before and after the offering.
Unity: before it was 51.8%; now it’s 33%BNDESPar: before it was 11%; now it’s 3.6%BNDES: Previously it was 5.8%; now it’s 3.7%Others: before it was 31.4%; now it is 59.7%
Rules to ensure corporation model
In the privatization of Eletrobras, some mechanisms were created in the company’s statute to allow the functioning of a corporate model, also called a public company.
In this model, the company does not have a single owner, but several shareholders. The company’s policies are defined by the Board of Directors, composed of representatives of several shareholders, with terms of office for certain periods.
It is also the board that chooses the executive directors.
For this model to work, there are rules that serve precisely to prevent shareholders from taking control of the company and thus being able to determine the course of business without the approval of most of the other minority partners.
Limit for voting power
One of the rules in Eletrobras’ statute limits the power of each shareholder to 10% of the votes.
It does not matter how many shares of common stock a particular shareholder owns. When voting at the General Meeting, this partner can only hold up to 10% of the shares. This is the case of the Brazilian State.
Even though it still holds approximately 40.3% of all ON shares with voting rights, the Brazilian government will only represent up to 10% of the votes at the meeting.
Thus, in order to define commercial policies, investment plans or changes in Eletrobras’ statute, the government will have to receive the support of other shareholders of the company.
The purpose of rules that limit an individual shareholder’s increase in ownership is to ensure that the company retains both ownership and widespread control. And the free trading of these shares, on the other hand, provides an important mechanism for self-regulation. If the company is poorly managed, the drop in the share price puts pressure on the company’s executives and board to ensure that the resources allocated are managed as efficiently as possible.
Luiz Fernando Araújo, CEO of Finacap Investimentos
High cost to take power
In any company, a shareholder can try to assume power by buying shares from other shareholders and, thus, start to determine the company’s direction without the agreement of the other partners.
In order to avoid this movement, Eletrobras has in its statute rules that make this path difficult, making the business very expensive for those who try to take control by buying shares from the other partners.
The more shares a particular partner accumulates, the more expensive the path for him to complete the takeover can become.
If any shareholder who now owns less than 30% of the shares starts buying common shares and reaches that 30% share, a trigger is triggered that forces him to make an offer to buy the other 70% of the common shares at twice the highest price reached in the previous two-year period.
To give an idea of this cost, the shareholder in this situation today would have to pay R$ 93.38 per share, that is, 112% more than the price on Tuesday (21).
As the Union still held more than 30% of Eletrobras’ ON shares even after capitalization, this 30% lock does not apply to the Brazilian State.
Privatization will likely improve the company’s corporate governance due to widely distributed control and greater decision-making autonomy from management, as the government will no longer have a majority of direct votes, having less influence on the company’s future investments and decisions. of business.
Aneliza Crnugelj, vice-president assistant to Moody´s
Barrier against re-nationalization
There is also a 50% lock rule for a shareholder who wants to own more than half of the voting shares.
Upon reaching 50% of the voting capital, a shareholder is obliged to make an offer for the remaining common shares, paying triple the highest quotation reached in two years, that is, something like R$140 per share.
According to analysts’ estimates, this would today cost around R$142 billion for just half of the common shares, about 112% more than the company’s total market value on Tuesday (21), at around R$67 billion.
This rule directly influences an eventual plan of a government that intends to reverse the privatization of Eletrobras and transform it again into a state-owned company.
That is, considering only the statute that becomes valid for Eletrobras after capitalization, the government would have to spend a lot to nationalize the company again.
Although it does not prevent an attempt to renationalise, this rule inhibits this process because it forces the government to pay dearly for the shares, which reduces the possibility of this happening. And even if the process goes ahead, minority shareholders would still be well compensated for doing so. So, the intention of this rule is to reduce the chances of a reversal of privatization and make it advantageous for minority shareholders, if it happens.
Ruy Hungary, analyst at Empiricus
Rules can change
Eletrobras’ bylaws may change, by means of a vote in a general meeting, in a vote with the participation of the shareholders.
In that case, different shareholders would have to come together to gather more than 50% of the votes to change the statute, according to market analysts.
But just the need to compose a majority is already a way of filtering plans or intentions that can be economically negative for the other shareholders.
I understand that these are rules that help protect minority shareholders, strengthening corporate governance. Specifically about a reprivatization, this possibility generates fear among investors, given that we have candidates who have a discourse in this sense. So, with these rules, that risk becomes a more distant reality.
João Daronco, analyst at Suno Research
