Americanas crisis threatens reputation of Brazilian billionaires

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Jorge Paulo Lemann, Marcel Telles and Carlos Alberto “Beto” Sicupira –the main shareholders of Lojas Americanas– form the most respected and admired trio of Brazilian investors by the “market”.

Together since the 1970s, they are part of the creation of the financial market in Brazil, with Banco Garantia. And they are recognized for having successfully undertaken internationally, via AB InBev, Burger King and Kraft Heinz.

Having unquestionable success in a complicated business environment like Brazil’s is a sign of courage to take risks and competence, says a businessman close to the trio, who spoke on condition of anonymity.

He describes Jorge Paulo Lemann as “brilliant”, Marcel Telles as “great with people” and Beto Sicupira as “super aggressive”.

The trajectory of practically five decades, marked by pioneering spirit, had its flaws, but the market had never questioned the business practices and reputation of the three so much as now, because of the accounting scandal in which R$ 20 billion were no longer registered as debts on the American balance sheet.

The biggest evidence of the loss of credibility of the company and the trio was the fact that the banks were not willing to negotiate the problem or wait for the company to investigate what it called “inconsistencies”. Convinced that there was fraud, creditors are already preparing a criminal action against the trio.

With no credit in the market, Americanas entered into judicial recovery this Thursday (19), but for some years resource managers had raised doubts about its accountability.

According to specialists heard, the main clues were that financial expenses “didn’t add up”, Americanas did not generate cash and almost every year needed a capital increase.

But no one took that discussion further, in part because of the reputation and wealth of the trio of billionaire partners, says one of the managers, who declined to be identified. In the market’s perception, it would be difficult for them to overlook serious failures, but if they did occur, they would have more than enough resources to solve the problem.

Lemann, 83, is from Rio de Janeiro, the son of a Brazilian mother and Swiss father, and dedicated his youth to sports such as surfing, underwater fishing and tennis – he even competed professionally. For two decades, he has lived in Switzerland and is a neighbor of the star of the sport, Roger Federer.

On trips to Brazil, he has dedicated himself to talking to young people and visiting poor communities assisted by foundations he created, Estudar and Lemann. Friends, however, say that he is not as simple or humble as he seems to want to appear, and has a vain side. In the anecdote about the billionaire, one of those vanities is telling that he would have “taught” his neighbor Federer how to improve his backhand stroke in 2016.

Influenced by a cousin who had studied at Harvard, Lemann —today the richest man in Brazil— also decided to take an economics course at the American university in 1957, a time when it did not receive as many Brazilians as it does today.

It was there that he came into contact with the theses that permeate his business: meritocracy, which consists of promoting employees according to their performance; and the “partnership” system (association), which offers participation in the company to outstanding employees.

These are guidelines that make sense, but which in practice can end up turning into excessive pressure for employees, struggling with too many goals. They can also lead to a short-term view of the business, which benefits investors and managers, but can compromise the longevity of companies.

In 1963, already back in Brazil, Lemann joined Invesco, a company that granted credit, like a commercial bank and which went bankrupt because “it lent more money than it received”, according to the book “Sonho Grande”, which tells the story of the trio.

The businessman sought new partners and, in 1967, at the age of 28, he bought a brokerage firm, which he turned into Garantia, an investment bank that innovated and dominated the market from the 1970s onwards. It was there that he met his lifelong partners.

Telles, 72, started at the bank in 1972 and was soon head of the trading desk. Graduated in economics, he had the profile that Garantia was looking for: young, smart and with a lot of ambition to earn money. Sicupira, 74, arrived in 1973, introduced to Lemann by another partner at the bank.

The fact that they both practiced underwater fishing brought them together – years later, Telles also learned the sport. Quickly, they became the closest Garantia partners to Lemann and were consolidating the partnership that lasts until today.

In 1982, Telles left Garantia to head Lojas Americanas, the first acquisition made by the bank. In 1993, he transferred to GP Investimentos, the first Brazilian private equity fund – created by the trio of entrepreneurs.

In 1994, it was Sicupira’s turn to lead the newly acquired Brahma brewery. Lemann always stuck to the strategy and never went to work in companies.

In 1998, Garantia succumbed: it was heavily exposed to external debt securities in the Asian and Russian crisis. There are those who attribute the collapse to the distancing of the main partners – that year, Lemann left due to a heart attack.

Lacking credibility, Garantia ended up being sold to Credit Suisse for US$ 675 million. The trio no longer invested in the financial sector and started to build businesses from poorly managed companies with the potential to grow after restructuring. Then came the 3G brand, the name of the vehicle created by them to invest in companies.

Brahma, in 1999, bought rival Antarctica, became Ambev and in 2004 was bought by the Belgian Interbrew. Even with fewer shares, the Brazilians dominated the company’s management and, four years later, in the trio’s most daring move, they stayed with the American Anheuser-Busch (AB), maker of the best-selling beer in the world, Budweiser. AB Inbev continues to be the leader in this global market.

International investments continued in 2010, with worldwide control of the Burger King fast food chain. In 2013, they bought the American food company Heinz, with American mega-investor Warren Buffett as a partner, whom Lemann met in 1998, when both were on the board of Gillette.

In 2015, Heinz merged with Kraft, in a move that proved to be unsuccessful, as Lemann has already recognized. 3G has been reducing its participation in this business.

In those years when they turned their dream of leading global companies into reality, the trio became known worldwide and earned their place on the list of richest men by Forbes magazine. In 2022, Lemann (BRL 72 billion), Telles (BRL 48 billion) and Sicupira (BRL 39.85 billion) appeared in first, third and fourth place on the list of greatest Brazilian fortunes. The three dedicated themselves to philanthropy and actions to support education.

The trio rarely gives interviews and maintains a low-key, unostentatious profile — another trait brought to the companies they run. The order is always to promote cuts in costs and expenses and remove perks from the top, which also accelerates quick results.

Noises with minority shareholders, questions about the transparency of invested companies and accounting problems, now in focus, grew over time and apparently exhausted the patience of investors and creditors.

América Latina Logística (ALL), invested via GP, was in bad shape in 2016, when it was acquired by Rumo —after the operation, the company republished three years of balance sheets. Kraft Heinz was questioned and fined by the SEC (the US Securities and Exchange Commission) for accounting misconduct. In both companies, the problems were in the line of suppliers, as well as in Americanas.

The news that there are problems in the retailer’s balance sheet came months after a corporate restructuring that led the trio to get out of control, reducing the slice to 30%. The three were the controllers during practically the entire period that the accounting scandal took place, and they still have a majority on the board of Americanas – Sicupira is on the board.

What is said among financial advisers is that no one did anything at Americanas without consulting the trio.

Creditor banks want billionaires to take responsibility for the crisis and put between R$10 billion and R$15 billion to save the company. In response, the trio waved BRL 6 billion and showed no hurry. In the judicial recovery, they committed to inject resources into the company so that it continues to function, but they did not specify how much.

The point is that, from what is known so far, the main effect of the accounting maneuver was to inflate the company’s profits. With this device, Americanas delivered only average results; without him, not even that.

Investors are now asking themselves whether they are going to “shred money” by injecting new resources into the company to maintain its reputation or legacy, which would be the main sign of Americanas’ viability. The outcome of the case will also be closely monitored by international investors.

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