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Boeing-Embraer JV seeks nod
July 13, 2018
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SAO PAULO: Planemaker Embraer is counting on the votes of public sector Brazilian shareholders to outweigh any potential investor objections to its tie-up with Boeing, two people with knowledge of the matter said.

Doubts about the valuation of Embraer’s commercial jet unit in a proposed $4.75 billion joint venture (JV) sent Embraer shares tumbling nearly 15 per cent in a single day last week, although shares are still up 32 per cent since the deal was first reported.

Some small investors have complained the deal effectively gives Boeing control of Embraer’s main business without having to pay the 50 per cent premium called for in a poison pill in the planemaker’s bylaws. Top foreign shareholders have so far kept mum on the issue.

Even if those offshore investors do object, however, one of Embraer’s little-known corporate bylaws will effectively give a Brazilian-held share about six times the weight of a foreigner’s at a shareholder assembly, according to the sources who requested anonymity to discuss the deal publicly.

The support of public-sector pension fund Previ and state development bank BNDES, which together hold about 10 per cent of Embraer shares may thus prove decisive, the sources added, underlining the sway of the Brazilian government which also has a “golden share” in the formerly state-controlled company.

Embraer, Boeing and Previ declined to comment on the matter. BNDES did not reply to questions.

Embraer’s corporate statutes grant Brazilians at least 60 per cent of voting rights at shareholder meetings, even though domestic shareholders held just 19 per cent of Embraer’s outstanding shares as of March, according to the company — and about half of those belong to Previ and BNDES.

BNDES, which holds the shares through investment arm BNDES Participações, was part of a government working group discussing the tie-up along with representatives of the finance and defense ministries. BNDES head Dyogo Oliveira on Tuesday said it was “certainly a good deal.”

Previ, which manages pensions for employees of state-controlled lender Banco do Brasil SA, has not made its stance on the deal public.

Embraer’s top shareholders, Brandes Investment Partners LP, BlackRock Inc and Mondrian Investment Partners LP may also have their say limited by a bylaw restricting the voting rights of investors with more than 5 per cent of shares — the case for all three as recently as March.

All three fund managers declined to comment.

While Embraer shares are still up 32 per cent since Boeing disclosed its interest, some analysts have suggested investors were shortchanged by the US jetmaker’s final offer.


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