The Aracruz-VCP merger
Valor Econômico - 01/21/2009
The merger between Votorantim Celulose e Papel (VCP) and Aracruz Celulose gives rise to largest world company in short fiber pulp and the fourth in the total amount of pulp. Considering the Greenfield projects and the planted area of both companies, besides the investments in forests, among the largest in the world, it is expected that the new company steps up in the ranking. The business, in practice, leverages Aracruz, which, because of the crisis, suffered heavy losses with foreign exchange derivatives. The operation for the purchase of the interest of the Norwegian entrepreneur Erling Lorentzen in Aracruz by VCP had been arranged since August, but the problems with derivatives, which appeared in September, made the business unfeasible, leaving it in a standby. After the turmoil was over, the Votorantim group, controller of VCP, showed its enthusiasm to resume the operation. Minority stockholder of both Aracruz and VCP, the BNDESPar, the investment branch of the BNDES, conditioned its support to the business to a previous arrangement of the losses with derivatives with the creditor banks. That was the means found by the Government to prevent the State would be the exit door for the losses of Aracruz and the banks involved in the exchange operations. The company concluded on Monday the re-negotiation with ten banks, all foreign banks, extending its debt for nine years. Before that, the Votorantim group had already done the same in relation to its own losses with derivatives. The re-negotiation opened the way for the purchase of Aracruz. The company was coveted by foreign companies. The most interested one, according to one of the participants of the merger with VCP, was Finnish-Swedish Stora Enso, which had even hired consultants in Brazil to evaluate the business. The idea was to acquire Veracel, a company in which the foreign group already had interest in association with Aracruz - in 2003, both entered into a partnership to make Veracel produce 900 thousand tons of eucalyptus pulp a year. With the merger, VCP undertakes the commitment with BNDESPar of migrating to the New Market. This is excellent news. It helps strengthen the capital market of the country and requires the new company to comply with the corporate governance practices that could certainly have prevented Aracruz Celulose, and the group Votorantim, from venturing in the dangerous adventure of the foreign exchange derivatives. The creation of strong, competitive national companies, with production at a scale large enough to assure them a relevant role in the world market, is, undoubtedly, an important achievement of modern Brazil. Just as an example, ten years ago, Brazil was already the largest producer of iron ore of the planet, and the 7th greatest producer of steel, but its best classified company in the world ranking of steel metallurgy was only in a very modest 27th place.