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Case Ipiranga


In: 2007

in a Material Fact published on March 19, a consortium composed of Ultrapar, Braskem and Petrobras announced its acquisition of control of the Ipiranga Group (made up of the companies RPI, DPPI and CBPI).

In the same Material Fact, the prices were included referring to the prices for the acquisition of control and for the performance of a ‘tag along’ offer on the ordinary shares which did not form part of the control block– an obligatory step in accordance with Art. 254-A of Law 6.404/76. Up until this point, everything was in order.

However, a certain piece of information came to light which caused concern in the market: the Ipiranga Group’s preferential shares were to be incorporated by Ultrapar and the exchange ratio was to be based upon an economic evaluation report drawn up by  Deutsche Bank. There was, however, one detail: this document was still being prepared.

The premature announcement of the exchange ratio appeared to have an obvious motive: the intention of the new controlling shareholders to put a hold on the acquisition costs of Ipiranga which had known administration problems, since five families and 63 heirs shared control of the company. If Ultrapar could incorporate the preferential shares after the acquisition, the ratio would be different, since these shares would likely display positive performance after the change in control.

With this, the value of the Ipiranga Group’s preferential shares was depreciated with the probable objective of reducing the share issue of Ultra at the moment of the merger (given an exchange ratio that would be more favorable to Ultrapar). The old controlling shareholders had the right to ask a high price, but the preferential shares would not be able to pay this difference.

On April 13, 2007, almost a month after the exchange ratio had been announced, the evaluation report was published. The suspicions that this document had been drafted to “reduce” the value of Ipiranga and “increase” the value of Ultrapar appeared to have been confirmed by the report presented which included a number of easily recognizable mistakes along with a number of more technical ones.

One example was the intra-group participation of Companhias Ipiranga which held cross-holdings, the majority being through ordinary shares, on account of the Corporate Law.  In 2007, a public offer was held for the acquisition of ordinary shares and the amount paid was much higher than the price presented in the report (RIPI public offer: R$ 107.05 x report price: R$ 54.35). Why didn’t the report use the public offer price?

Another error identified in the report was the projections of the different companies’ results. In the case of Ipiranga, the projected result was very conservative, whilst in that of Ultrapar, the result was completely opposite. Assuming different premises, the Deutche Bank reduced the value of Ipiranga and increased that of Ultrapar.

Comparative table showing the difference for the first year of projection





















During 2007, because of all that had happened, various Ipiranga Group minority shareholders (amongst which were Previ, Tarpon, Heding Griffo, Polo, Mercatto, Argúcia and Banco Fator, which represented around 40% of the Ipiranga shares in circulation) filed a series of complaints concerning the operation with the CVM.

Despite the complaints highlighting the mistakes in the report, the CVM allowed the operation to go ahead and afterwards installed an administrative process to analyze these mistakes. In practice, this meant that once the merger had been concluded, the minority shareholders had to pursue a judicial path in order to recuperate their losses. Four years after the announcement of the operation, the analytical process is still yet to be concluded.


If an exchange ratio is based upon an economic value report and knowing that this document if often done “backwards”, an analysis by the regulatory agency is essential. The CVM did its part, installing an administrative process. According to material published by the Valor Econômico newspaper entitled “Unreliable Independence”, the agency found suggestions that the report was drafted by a number of different people and questioned its independence, since the Ultrapar board members actively participated in the creation of the document, which aimed to benefit such company (the objective of the report would have been to pay as little as possible for the Ipiranga shares – remaining ordinary and large preferred shareholder base).

In addition, a merger has to obtain the approval of all the companies involved in order to move ahead. Therefore, it would be no surprise if this merger were to be approved without resistance at Ultrapar’s EGM (Extraordinary General Meeting). However, the approval came from Ultrapar itself, which held more than 95% of the shares with voting rights. In this case, the conflict of interest appears to be obvious: the party which makes the proposal, in this case, taken as being bad for the minority shareholders, is the same as that which approved the operation.

Another important point is that it was the company’s administrative board, dominated by Ultrapar directors, which proposed that the operation should be presented to the shareholders. It would be hoped that the Ultrapar directors would defend the interests of the company that pays their salary and bonus, but could they also represent Ipiranga’s interests? It would appear to be clear that the answer is no! Ultimately, Ultrapar would be the greatest beneficiary if very little were to be paid for Ipiranga.

On November 8, 2007, a second report was presented, this time having been drawn up by Credit Suisse. This report corrected all the mistakes highlighted by the minority shareholders, and it arrived at the same price as the report drafted by the Deutsche Bank. If the mistakes had been corrected, Credit Suisse would have had to adjust other bases of the model to arrive at the same sum. It isn’t difficult to find these adjustments, although the debate then becomes more difficult, since the questions surrounding the adjusted items (net margin, working capital, etc.) are more complicated.

This is one more example of how a merger can take value away from the minority shareholders who can do nothing about it, since the law fails to protect them from the interests of the controlling shareholder. A merger is obligatory and, once it has been approved at an EGM (only the ordinary actions can vote and the controlling shareholder almost always has more than 50% of the shares with voting rights), it falls to the minority shareholders to appeal for the right to withdraw, should the company not have either dispersion or liquidity, in accordance with Art. 137, II of the Corporate Law. Very often, this protection fails to resolve the issue, since, in the majority of cases, following publication of the exchange ratio the prices converge for the ration proposed. In this case, on the day the operation was announced, Ultrapar’s shares rose by 5.7% whilst those of Ipiranga dropped 5.4%.


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