Judgment on Eletrobras privatization is suspended for 20 days at TCU

The judgment of the Eletrobras privatization process was suspended for 20 days at the TCU (Union Court of Auditors). The court granted Minister Vital do Rêgo’s request for a view in a trial held on Wednesday afternoon (20).

“I’m not here to question privatization, this is a government decision,” Vital said. “But this court cannot abdicate its role of external control and become an organ of the government on duty, whether left or right,” he said.

Vital do Rêgo also said that he found four inconsistencies in an hour of analysis of the rapporteur’s vote, which was sent to the ministers around 12 pm, just two hours before the trial – and questioned how many more he would find fulfilling the regimental deadline. He stated that he wanted 60 days but would be satisfied with 20.

The president of the TCU, Minister Ana Arraes, granted the request for 20 days, noting that the legal consultancy would evaluate the issue of the deadline for viewing, which was the great debate of the day.

According to financial market sources who follow the operation, the 20-day stoppage has little impact on the schedule, and does not make the process unfeasible.

The sale was modeled to occur through stock market capitalization. Shares and share receipts (ADRs) will be issued, respectively, in Brazil and the United States. The offer seeks to dilute the Union’s share, which needs to fall from 72% to 45%, raise funds to pay the grant to the State and transform the company into a corporation. No shareholder may hold more than 10% of the total shares.

The second stage of the TCU judgment assesses privatization details. In this round, the main points are to define the share value, which cannot be disclosed, and the governance structure of the new company.

Vital do Rêgo asked for a view right after the rapporteur’s vote was presented. The choice of deadline was seen as a strategy to deter a counterattack from colleagues who support privatization.

Minister Jorge Oliveira suggested to Vital do Rêgo that the deadline be reduced to seven days. He stressed that prolonging the trial could jeopardize the schedule of the stock exchange operation and make capitalization unfeasible in 2022.

Oliveira recalled that he himself asked for the period of view to be reduced to seven days, and it was granted, in the judgment that defined the public notice for the 5G auction.

Minister Otto Alencar reinforced Oliveira’s request and was followed by Minister Benjamin Zymler.

Zymler also suggested that perhaps the court could hold an extraordinary session on Thursday (21) to conclude the trial, giving Minister Vital do Rêgo a day to analyze the rapporteur’s vote. However, he reinforced that he recognized the rule and Vital do Rêgo’s right to maintain the 20-day deadline if he so wished.

In support of this demonstration, Minister Bruno Dantas reinforced that the regimental period is 20 days and that it is not possible to impose the reduction if Vital do Rêgo maintained the original request. Dantas also highlighted that the reduction to seven days adopted in the 5G trial was a mistake that he does not intend to support again while he is at the TCU.

Dantas also called it a “fallacious argument” to say that investors, already determined to put money in a state-owned company in Brazil, in an election year, would give up the operation because of three weeks.

“There is a window of opportunity, and even a 20-day term concession will not be able to make this capitalization unfeasible. I am absolutely sure of that”, he said.

The rapporteur of the case, minister Aroldo Cedraz, in turn, made two moves on the same day that surprised his colleagues.

In the written vote sent to the other justices of the court, two hours before the trial this Wednesday (20), he proposed a change in the original proposal that would make room for the renationalization of the company, if the federal government considered it strategic.

During the trial, however, he backtracked: he warned that he would withdraw this part of the vote. The trial was suspended for 20 days after Minister Vital do Rêgo Filho asked for a view.

The rapporteur’s amendment was in the passage dealing with the so-called “poison pill” (in the original English term).

“Poison pills” are common defensive measures in the financial market, taken by publicly traded companies to prevent a shareholder from suddenly becoming a majority, with a hostile offer. In this case, an attempt is made to prevent a new controller from making decisions that harm the other shareholders.

In the modeling presented by BNDES (National Bank for Economic and Social Development), the new Eletrobras, after capitalization in stock exchanges, would have its “poison pill”. According to the proposed rule, a shareholder that exceeds certain limits of shareholding participation would be penalized with the obligation to carry out a public offer for the acquisition of the quotas of the other shareholders. The value of this offer would be up to three times higher than the highest historical share price on the market.

Those who had access to the documents call the “poison pill” an anti-Lula clause, alluding to the fact that former president Luiz Inácio Lula da Silva, who leads the polls for the presidential election, has already declared that the party does not support the operation. in an interview with Sheetdeputy Gleisi Hoffmann, president of the PT, stated that if the party wins the elections and the privatization of Eletrobras has been completed, the process would be reviewed.

In his original vote, Justice Aroldo Cedraz agreed that the “poison pill”, as it was originally worded, is important to avoid a hostile takeover of Eletrobras by a private investor, but considers that it would have a setback that cannot be ignored: the mechanism, as proposed, would also be applied to public authorities, which he did not consider appropriate.

The rapporteur’s initial assessment was that the State has guaranteed by the Constitution the prerogative of retaking control of Eletrobras, if there is a strategic need that justifies this decision.

Therefore, he proposed the revision of the “poison pill” clause in order to preserve the prerogative of the federal government to, at any time, reverse the process of privatization of Eletrobras, upon payment of fair, but not exorbitant, amounts to the other shareholders.