The Brazilian Association of Minority Investors (Abradin) filed a protocol yesterday (7) with the CVM (Securities Commission) complaint involving the purchase of Kabum by Magazine Luiza (MGLU3), Magalu. In addition to several legal proceedings, brothers Thiago and Leandro Ramos, founders of Kabum, are trying to reverse the deal in arbitration at the Brazil-Canada Chamber of Commerce.
Abradin’s fear, according to the document released to the press, is that minority shareholders will pay the bill for the operation by diluting their shares in the company. retailer. They understand that the adjustments involving the purchase must be paid exclusively by Magalu’s controllers.
In the same complaint sent to the CVM, Abradin also indicates a lack of transparency in the first communication to the mercado about the operation, which does not mention how much Kabum was valued at or the share exchange ratio for the aforementioned “share merger”. The document only says that R$ 1 billion would be paid in currency and the remainder in a total of 125 million Magalu shares, of which 50 million would be subject to unacceptable conditions (fulfillment of targets) with exercise only on 31/ 01/2024, highlights.
According to Abradin, although they are just examples among the countless possibilities of possible protection operations, simple “hedge” operations would have the power to maintain the health of the incorporation operation, as it would guarantee that the value in national currency at which Kabum was evaluated (and, based on this, the closed deal) was guaranteed, regardless of the fluctuation in the value of Magalu shares between the date of signing of the purchase and sale contract and the date of effective settlement of the operation.
“Of course, these operations with the company’s own derivatives would need to be approved at a meeting. But the same assembly that approved the deal and Kabum’s valuation would define the number of Magalu shares to be exchanged for Kabum’s, according to the price of the day it should also authorize derivative operations aimed at protecting the operation”, he reflects. the entity.
In the entity’s assessment, “it would not be fair” for Magalu shareholders, especially minority shareholders, to be diluted beyond what is necessary, without a corresponding increase in the company’s equity, in the event of an increase in shares between the date of the agreement and the date of sale off.
“Let’s assume that, on the date of the agreement, the share was priced at R$20. As we saw, 125 million shares would be equivalent to R$2.5 billion and this would be the fair value of the transaction according to Kabum’s valuation in currency national current. Now, let’s suppose that on the date of settlement of the merger, the share was priced at R$30. At this price, the value effectively given in shares to Kabum shareholders would be equivalent to R$3.75 billion. No less than R$1.25 billion more than the fair, assessed and agreed value”, argues Abradin.
In this case, according to the entity linked to the minority shareholders, the sale options would not be exercised, but Magalu would exercise the option to purchase shares with an exercise price of R$20, to be settled exclusively via receipt of shares from Magalu, for the difference between the market price on B3 (in this example R$30) and the aforementioned exercise price.
“In other words, it would charge Kabum shareholders 41.66 million MGLU3 shares which, at R$30 each, results in R$1.25 billion more than the MGLU3 shares given in exchange for all Kabum shares were worth in relation to at the fair value assessed and agreed between the parties. In short, exercising this option would guarantee that Kabum shareholders would receive the equivalent of R$2.5 billion in MGLU3 shares, or 83.33 million shares”, he calculates.
In the latter case, of the 125 million shares issued to be given in payment, 41.66 million would return to the Treasury, avoiding undue dilution for Magalu shareholders and an equally undue billion-dollar gain for Kabum shareholders. “The smoothness of the business and the health of the market would also be guaranteed”, claims Abradin.
In August, amid legal efforts by the Ramos brothers to question the conditions under which the sale of the platform took place, Magazine Luiza signaled to Broadcast a promise to open, in the future, a case against the Ramos brothers to “recover damages caused by the accusation.”
Contacted today (Wednesday, 8) by Broadcast, Magazine Luiza said it will not take a position.
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The post first appeared on einvestidor.estadao.com.br