Vale’s new equity arrangement
Vale (VALE) announced on February 20, 2017, that it’s seeking to merge its two existing classes of stocks. This would enable all the stocks to carry voting rights from the current ~61%. Vale’s controlling shareholders in Valepar will lose control of the company, and the company is proposing a three-year transition period for this restructuring to take place so that “the company and investors can get adapted to this change.”
During the conference call held on February 20, 2017, Vale’s CEO, Murilo Ferreira mentioned, “this is a historical opportunity for Vale. It could be as important as it was when we privatized the company.”
Proposed transaction structure
The company is going for two different proposals, which will have three different votes. There is a voluntary conversion of preferred shares into common shares. The holders of preferred shares will receive 0.9342 common shares per preferred share held.
The proposal will entail changes in Vale’s bylaws, in-line with the rules of BM&F (Brazilian Mercantile and Futures Exchange) Bovespa’s (Bolsa de Valores, Mercadorias & Futuros de São Paulo) listing agreement.
With Valepar’s merger into Vale, Valepar’s shareholders will become direct shareholders of Vale. This will lead to a 10% increase in their shares and would come as a 3% dilution to the other shareholders.
This move is seen as a major governance overhaul, which will enhance transparency and equal rights for all shareholders. This will also reduce the potential for government interference. During the conference call, Vale’s CFO (chief financial officer), Luciano Siani, mentioned increased liquidity as well as “a higher access to capital markets” as some of the benefits, among others.
The price of iron ore is the single largest driver for Vale’s revenues and earnings. It is also a key driver for other miners’ (XME) stock prices such as BHP Billiton (BHP), Rio Tinto (RIO) and Cliffs Natural Resources (CLF).
In the next part of this series, we’ll explore Vale’s view on the outlook.