Deal focus

Over the last year the Ipiranga Group has been taken apart and its parts sold to three of Brazil’s icons. Rosie Cresswell talks to the lawyers that steered the reorganisation of Brazil’s petrochemical industry
The Ipiranga Group was, until very recently, a leading presence in Brazil’s petrochemicals and energy distribution industries. Now, it has been carved up and shared out between three of Brazil’s commercial icons via a corporate restructuring of mammoth proportions.

Ipiranga’s parts have been digested by Brazil’s state-owned oil company Petrobras, Latin America’s number one petrochemicals group Braskem, and the Ultra Group, Brazil’s largest liquefied petroleum gas distributor.
The transaction, now subject only to final approval from Brazil’s competition regulator, CADE, has become a symbol of the Brazilian government’s plans to create and strengthen national champions across a range of sectors. It is also integral to the reorganisation of Brazil’s petrochemicals sector that has been ongoing since the 1997 petroleum law drew an end to Petrobras’s monopoly.

In total, the acquisition cost US$4 billion. Petrobras paid US$1.3 billion cash, Braskem US$1.1 billion, and Ultrapar issued over 50 million new shares to finance its part of the deal.

As of 27 February, Ultra runs Ipiranga’s energy distribution network in the south and south-east of Brazil, while Petrobras presides over its channels in the north, north-east and mid-west. Meanwhile, Braskem now has a 60 per cent interest in Ipiranga’s petrochemical operations, with the remainder controlled by Petrobras. The three companies have equal controlling shareholdings in Ipiranga’s refinery in Rio Grande do Sul.
It seems a clean split of ownership now, but breaking Ipiranga’s assets down and sharing them out took some shrewd negotiations and restructuring that tapped some of Brazil’s sharpest legal minds for over a year.

At first, Ultra approached Ipiranga’s owners alone, eyeing a section of the group’s distribution network. But talks petered out when it became clear that the sellers would only let go of Ipiranga as a whole – something Ultra lacked the impetus and resources to respond to.

The Ipiranga Group consisted of three listed companies: a petrochemical unit, Companhia Brasileira de Petróleo Ipiranga; a gas distribution business, Distribuidora de Produtos de Petróleo Ipiranga; and an oil refinery.

Ipiranga’s sellers, five families and more than 60 minority shareholders, were insistent that all three companies should be sold off together. They had been keen to offload the group for some time, even setting up a data room in New York. Repsol was previously a potential suitor. If their previous attempts achieved nothing else, they exposed the difficulties in reaching a universal agreement among the numerous shareholders. Splitting the assets for a partial sale would only have increased the headache.

So Ultra sought out buying partners for Ipiranga’s petrochemical assets and the distribution channels it didn’t want. Braskem – being number one in the petrochemical sector – was an obvious choice, as was Petrobras, which the Brazilian government wanted to reintroduce to the sector in a bid to foster competition there.
But three buyers did not appeal to the seasoned selling parties – the fact that they were multiple sellers did not need to be complicated further with multiple buyers. Given that Ultra had already entered negotiations, it was decided that it would act alone in the acquisition of all the assets, behaving as an agent to Braskem and Petrobras.
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Alexandre de Mendonça Wald of Wald e Associados Advogados, Ultra’s counsel alongside Machado Meyer, notes that gaining relevant regulatory approval for the buyers’ tender offer to acquire minority shares further delayed the deal.

“This kind of tender offer depends on authorisation from Brazil’s securities and exchange commission, which was delayed by some administrative requests made by minority shareholders,” he says. The shareholders initiated several legal and administrative actions to prevent the process. In the end, the commission and the courts denied their requests.

With this first stage of the transaction completed, the deeds of the three Ipiranga companies were in the hands of Ultra. The next task was to restructure the assets based on evaluations drawn up by Deutsche Bank and Credit Suisse. This included making the Ipiranga companies into wholly owned subsidiaries of Ultra’s holding company, Ultrapar, through a merger of shares.
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It was not merely the three buyers’ different interests which necessitated the root-and-branch restructure. Ipiranga’s previous corporate structure was seen as an obstacle for growth. “[The original arrangement] was designed to allow and maintain shareholding control by the members of five different families, not for efficiency,” says Wald. “The main problem was the various cross-shareholding among the companies of the group.”
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By 18 December, nine months after the transaction was announced, the companies were ready to be shared out between Ultra, Braskem and Petrobras as agreed.

Upon completion of the transaction, Ultra becomes the second-largest fuel provider in the country, with a 15 per cent market share. Braskem’s control of the Brazilian thermoplastic resins market increases to over 50 per cent. Petrobras already has a market share of about 98 per cent in Brazil’s refinery market, and the deal will leave only one refinery in the country that it doesn’t own.
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CADE has still not released its final opinion on the transaction. Brazil’s securities and exchange commission and the ministry of finance recently published their opinion, recommending it should go ahead. Now the parties await CADE’s decision which Mattos hopes will come before July – but he sees obstacles ahead. “CADE officials that know the sector well are leaving. It is uncertain whether their replacements will be so informed,” he explains.

Creating national champions

The ANP had a key role to play beyond competition analysis, steering Petrobras and Braskem’s acquisition of Ipiranga’s petrochemicals business to a degree. The division of those assets is linked to the reorganisation of Brazil’s petrochemicals sector and follows other recent acquisitions made by both companies.

Petrobras had a monopoly of the petrochemicals industry until 1997, when new legislation was enacted to promote free competition, attract new investments in energy production, and expand Brazil’s competitiveness in the international energy market. Braskem was subsequently created in 2002 when the sector was finally opened up through the merger of the chemical and petrochemical assets of the Odebrecht and Mariani groups.
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The government has instigated the reorganisation of both Petrobras’s and Braskem’s petrochemical assets as part of its plan to boost competition in the national market by increasing the number of players in the market. The government also has designs to give Braskem more clout globally.
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Petrobras has already made a number of key acquisitions that should improve competition and streamline the sector. Through the Ipiranga deal, it and Braskem also own Copesul, one of the largest producers of raw materials for the industry. Petrobras also recently acquired another petrochemicals company, Suzano. Petrobras and Petroquisa recently announced a joint venture with Unipar. Their pooled chemical assets will create what would be the second-largest petrochemical group in Brazil.

Braskem, on the other hand, has ventured outside of Brazil. Last April it signed a joint venture with Venezuelan state-owned company Pequiven that could see investment of up to US$5 billion. The Bolivian government has also said it is in talks with Braskem over a US$1.5 billion plan to build three petrochemical plants in the country.
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Counsel to the Ultra Group

In-house – general counsel Ângela Antonioli Pêgas
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Wald e Associados Advogados

Partners Alexandre de Mendonça Wald, Luiza Rangel de Moraes, Mariana Tavares Antunes, Armando Guimarães de Almeida Neto and André de Luizi Correia, and associates Marina Gaensly, Liana Gorberg and Samantha Mendes Longo
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Source: Latin Lawyer