F&C leads calls to protect minority shareholder rights in Brazil

F&C has been joined by over a dozen leading UK, North American and European institutional investors in writing to the Brazilian securities regulator, the Commissão de Valores Mobiliários (CVM), to urge greater legal protections for minority shareholders.
The action has been triggered by the bid launched on 6thAugust 2008 by Votorantim Celulose e Papel (VCP), which is seeking control of fellow pulp and paper producer Aracruz. While the investors have no objection in principle to the combination, not least in light of significant potential cost savings, they warn that it will come at the expense of minority investors in both Aracruz's voting and non-voting stock.

F&C and many of the signatories own neither stock, and so are not immediately affected by the terms of this particular transaction. However as significant investors in the broader Brazilian market, they have raised their concerns because of the damaging effect they anticipate this action could have on both the value of their other Brazilian holdings and on confidence in the Brazilian market as a whole.

The investors' concerns have been echoed by like-minded institutional investors within Brazil, including the Capital Markets Investors Association (AMEC), which has indicated its intention to write to the CVM with similar demands.

In its letter, F&C makes the case for high standards of corporate governance, arguing that both companies and investors stand to benefit from more effective and accountable management, a lower cost of capital, and more efficient capital markets.

"As long-term investors in Brazil, we have welcomed the recent progress of many Brazilian companies to protect the rights of shareholders, as this has contributed to the country's rising reputation in the global capital markets", said Karina Litvack, F&C's Head of Governance & Sustainable Investment. "We therefore view this most recent development with particular disappointment. We are asking the CVM to encourage the two parties in this specific case to act voluntarily to protect minorities. But ultimately, what is most important is that the CVM re-evaluate the existing regulatory framework so as to restore global investor confidence in the Brazilian capital markets."

"Corporate governance has been continuously improving in Brazil thanks to pressure from regulators and local investors. In this context it is especially disappointing that VCP - which has always been distinguished by excellent financial disclosure - has missed the opportunity to set a good example", added Urban Larson, a Latin American specialist and fund manager within F&C's emerging equities team.