Last updated Thursday, Jan. 19, 2017 5:13PM EST
Leading shareholders of Vale SA are close to endorsing a plan to turn the world’s No. 1 iron-ore producer into a company with dispersed share ownership within six years, two people familiar with the talks said.
Bradespar SA, Mitsui & Co. and several Brazilian pension funds are negotiating a new shareholder accord that would give Vale dispersed share ownership – in which no major shareholder controls decision making at the company – once the agreement expires in six years time, according to the people, who asked for anonymity since talks are under way. Negotiations could be concluded by late February or early March, the people said.
The current 20-year shareholder accord expires in April. Holding company Bradespar and pension fund Previ proposed the conversion of Vale’s different types of stock into a single common one as the first step towards transforming the mining giant into a company with dispersed share ownership, the first person said.
By radically changing Vale’s corporate structure, Bradespar and Previ want to boost the company’s allure to investors. The plan could result in enhanced transparency and limited government meddling – an aspect that weighed down Vale’s stock during president Dilma Rousseff’s five years in office that ended with her impeachment last year.
“The situation is advantageous to the controlling bloc, because the shareholders acknowledge that there is so much value to be captured with this initiative,” the first person said.
If shareholders can agree on the new six-year accord, the plan would be presented to Vale’s board around March and to shareholders briefly after, the people said. It prevents Bradespar and Mitsui from paying a large premium to Previ, Vale’s No. 1 shareholder, to keep sharing decision-making powers, the people said.
So far, there are no discussions between Vale’s top shareholders to replace chief executive officer Murilo Ferreira, whose term expires halfway through the second quarter, the people said.
One of the people said they may propose that Mr. Ferreira, who took the helm of Vale in May, 2011, stay on for at least another year.
Vale confirmed in a statement on Thursday morning that a new agreement was under discussion among shareholders, without giving further details. It said the dispersing of share capital was not being discussed at company level.
Preferred shares in Vale fell 2.2 per cent on Thursday, subtracting the most points from Brazil’s benchmark Bovespa stock index, after reaching a 38-month high on Wednesday. Common shares in Bradespar fell 3 per cent, paring back this year’s gains to 34 per cent.
The media offices of Bradespar, owned by Banco Bradesco SA, and Previ did not have an immediate comment. Efforts to speak to Mitsui’s press office outside working hours in Japan were unsuccessful.
The improved corporate governance framework stemming from a new shareholder accord could help Vale’s shares soar, cutting their gap in relation to global mining peers, Banco BTG Pactual analyst Leonardo Correa said in a client note.
The move could unleash up to $24-billion (U.S.) in value for shareholders of the Rio de Janeiro-based miner, he said.
Preferred shares, Vale’s most widely traded class of stock, gained 3.3 per cent to 29.44 reais ($12.26 Canadian) on Wednesday, while common shares added 5 per cent to 32.11 reais.
The premium to which common shares trade relative to the preferred ones moved significantly after newspaper Valor Economico reported on the plan on Wednesday.
Other members of the bloc that controls Vale via investment holding company Valepar SA include pension funds Petros Fundacao, Funcef and Fundacao Cesp, as well as state development bank BNDES.
The strategy would replicate the move that helped put plane maker Embraer SA out of the government’s control in 2006, the people said.
The Brazilian government also has a golden share in Vale.
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