Vale do Rio Doce

Brazilian mining giant Vale SA announced a plan Monday to create a single class of stock without a controlling shareholder, likely reducing the potential for government interference in what management characterized as a watershed for the company.

The proposal seeks to unify Vale’s two existing classes of stock so that all of its shares carry voting rights, up from about 61% now. Controlling shareholder Valepar, which currently holds 53.9% of Vale’s voting stock and is majority-owned by state-run entities, would thereby lose its control of Vale.

“We’re facing a historic moment for Vale, a landmark that could be as important as privatization 20 years ago,” Chief Executive Murilo Ferreira said in a conference call with analysts. The transaction, which would require minority shareholders to accept 0.9342 new shares for each nonvoting share they currently own, would “turn Vale into a world-class company in terms of governance,” he said.

Though spurred by the expiration of Vale’s shareholder agreement later this year, the proposal comes at a time when corruption scandals and Brazil’s deepest recession on record have undermined public trust in the government’s ability to manage key sectors of the economy. Vale is considered by many to be a quasi-state-owned enterprise, as the biggest holders of its voting shares include government-run pension funds and state development bank BNDES.

“It’s probably overstated in terms of its day-to-day impact on the management of Vale, but there is that sort of overhang, there is that smell of it,” said Paul Gait, a senior analyst at Bernstein Investment Research and Management in London.

The chief executive of the mining company Vale do Rio Doce, Murilo Ferreira
The chief executive of the mining company Vale do Rio Doce, Murilo Ferreira.

While the government can’t call shots as directly at Vale as it can at oil company Petróleo Brasileiro SA, politicians have managed to pick bosses at the mining company. Mr. Ferreira himself was installed by ex-President Dilma Rousseff shortly after she assumed office in 2011. More recently, Brazilian newspapers have reported that conservative Sen. Aécio Neves, whose party is key to President Michel Temer’s coalition in Congress, is vying to swap Mr. Ferreira for a pick of his own despite private shareholders’ desire to keep the CEO in place.

Such rumblings are believed to be among the reasons for which Vale’s stock has long traded at a discount to other big mining companies such as BHP Billiton Ltd.or Rio Tinto PLC. Analysts say the proposal unveiled Monday should improve transparency and make Vale easier to compare to its peers.

Vale’s nonvoting shares recently traded 5.9% higher at 34.14 Brazilian reais ($11.68).

“This is normalizing the governance and shareholder structure at one of the world’s largest mining companies,” Mr. Gait said. “That’s got to be a good thing.”

Carlos Monteiro is a Brazilian citizen, graduated in Business Administration by the Catholic University of São Paulo. He lives in Odense, Denmark with his Danish Wife, Cathrine, and their half Danish /Brazilian daughter Ines Marie. You are very welcome to be in contact him at any time.
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