Shareholders’ agreement may call into question diluted control in Eletrobras

If Minister Paulo Guedes (Economy) manages to carry out his first privatization, selling the control of Eletrobras to the private sector, the shareholders of the largest electric energy company in the country will become partners in a corporation, an expression in English for companies whose control is pulverized.

Result of the capitalization process, under analysis by the TCU (Court of Accounts of the Union), the change would mark the departure of the company’s control from the hands of the Union, currently responsible for most of the nominations for the board of directors.

experts heard by Sheet differ on the main effects of the change in the corporate structure of the state-owned company responsible for generating a third of the country’s energy, which owns 56 thousand kilometers of transmission lines, equivalent to 40% of the total existing in the national electricity system.

The consensus among these specialists is that, from the management point of view, the company will certainly gain agility to be able to become more efficient, cutting costs, since it will be free from the limitations imposed by the legislation that regulates purchases via tenders. Or labor laws with greater guarantees for the civil service.

For some, however, it is not possible to rule out —nor to criticize a priori— that a process similar to what happened with Vale, which after privatization became controlled through an agreement between large shareholders, with Union participation via state-owned pension funds and BNDES (National Bank for Economic and Social Development), through Valepar.

Valepar was born from a shareholders’ agreement involving Bradesco, Mitsui and the pension funds of Caixa Econômica Federal, Banco do Brasil, Petrobras and Cesp (Companhia Energética do Estado de São Paulo), having been formally dissolved in August 2017.

In the case of Eletrobras, the change is not yet guaranteed. The company’s control may change if the federal government obtains the TCU’s approval to carry out the capitalization of the company, selling shares on B3, the Brazilian stock exchange based in São Paulo, and on the New York Stock Exchange.

Under the proposed model, the Union will not fund capitalization. It will thus reduce its participation to a maximum of 45% of the company’s capital, giving up control.

The new rules also propose a maximum limit of 10% for common shares, with voting rights, for each shareholder or group of shareholders.

A professor at Eaesp (São Paulo School of Business Administration) at FGV (Fundação Getulio Vargas), Cláudia Yoshinaga considers the concept of equity behind the idea to be positive.

“Diluted control is something favorable because it is possible to try to seek equity in relation to controlling shareholders. Strictly speaking, everyone is a shareholder, but when the power of the majority is disproportionate, inequalities are created, which can be perverse”, evaluates Cláudia .

Like other experts, she cites the case of the US, where the largest companies generally have diluted control.

“The North American model is one of dispersed ownership, with very small, single-digit stakes, less than 10% of the company’s capital. In this respect, the US is better than we are. The problem is that the CEO’s autonomy [presidente-executivo] be higher due to lack of supervision,” she says.

Also for the sake of equity, the FGV professor says she is against the so-called golden shares, through which a shareholder —in the case of Eletrobras, the Federal Government— generally holds veto power over topics considered essential in the business, varying from case to case. the case.

“Golden share is bad, from a governance point of view, because it treats shareholders unequally. In this case [da Eletrobras]it is the government that claims to have superpowers, which ends up creating distortion”, says Cláudia.

A specialist in corporate law, Bernardo Portugal, a professor at Fundação Dom Cabral, mentions the case of scandals involving large US companies in the late 1990s and early 2000s, which served as the basis for stricter legislation.

“It has been proven that managers who should have loyalty to the interests of the company and shareholders used information, manipulated accounting, billing, to pay larger bonuses, misrepresenting the purpose of the company”, says Portugal.

He is one of those who consider it possible to have a shareholders’ agreement, in the case of Eletrobras, which would not go against market rules.

“The shareholders’ agreement is provided for in the Corporate Law, according to which there must be a copy filed with the company. And the agreement will have to be announced when there is a meeting”, says Portugal

For economist Ricardo Machado Ruiz, professor at Cedeplar (Center for Development and Regional Planning) at UFMG (Federal University of Minas Gerais), in Vale’s case, the shareholders’ agreement, which ended in 2017, allowed greater cohesion and coherence to the strategic management of long-term growth.

“Today there is a doubt about the possibility of the company [Vale] be undergoing a process of financialization and executing a conservative expansion strategy with little impetus in the development of new markets and mining assets. In other words, the company would be turning into a short-term cash-generating asset, losing the prospect of long-term growth”, evaluates Ruiz.

He recalls that a mine project can take five years between the investment decision and installation and with the operation and return on investment occurring over the following decades. “These conflicts arising from the fragmentation of shareholders do not necessarily have to occur. But they can occur when there is a dispersion of interests and funds without great commitment to the company in the long term”, he says.

Ruiz does not rule out a shareholders’ agreement, in the case of Eletrobras, similar to what happened at Vale until 2017. “Remembering that a shareholders’ agreement is not necessarily bad, nor is dispersion necessarily good”, he assesses.

With an eye on the calendar, analyst Giuliano Ajeje, from the investment bank UBS, highlights that one of the problems in the tight schedule to privatize Eletrobras has to do with a rule by the North American SEC (Security Exchange Commission), responsible for regulating shares traded in the US and equivalent to the CVM in Brazil.

Under SEC rules, the capital increase must be completed no later than 134 days after the last day of the most recent balance sheet, which means May 13th.

“If you miss this window, it means that the process will take place after June, getting closer to the elections. Electoral calendar can increase the risk of the operation”, says Ajeje, from UBS.

Before, however, it will have to overcome the resistances in the TCU. And a critical point has to do with the dates above.

When the 2021 balance sheet was published, which is serving as the basis for defining the share price for capitalization, the company’s shares cost about R$33. This Friday (22), they were traded at R$43, with a difference of 30% that could be questioned in court.