Buying Brazil (Buying Brazil Trilogy Book 1)

by Arthur Rawl

  The four man BrasTel team gathered around him each in turn shaking his hand. With a few words from each they starting building the understanding necessary for trust to begin growing and the deal start moving to a closing in minimum time. I looked at Robin and the smile on her face told me she had seen and heard the same dynamics as I had.

  Twenty minutes later it was just Alana, Robin, von Lieghter and I and of course a lunch buffet that had been ordered for one o’clock.

  While filling her plate Robin turned to Alana, “What was the speech at the end about?”

  “It was about fear and political uncertainty. At this point everyone believes the PT will win the election and while Lulu is making centrist speeches about what his administration would do if elected. The PT in general is politically left of center and the appointments Lula will make will have to include people from the left.

  The two Cardozo administrations have been pro-business and international trade. Naturally the PT as a party is worried more about salaries and jobs than anything else. The party could easily do something that hurt the long-term outlook for Brasil. BrasTel as would be most sector leaders within the economy and the government do not want uncertainty to hurt the price because the political deal now in place could unwind.”

  “I understand”, Robin answered with forced lightheartedness. “Ignore the uncertainty and offer a big number.”

  “You’re right Robin that was the message. But, I don’t think the buyer is that concerned with the price as long as it’s within reason and I think the buyer believes reason is defined as a range between six-hundred seventy-five million and seven-hundred twenty-five million. They expect you two to position an offer that after limited negotiation settles within that range. What do you think your group’s appetite is Hans?”

  von Lieghter scratched his chin, “Is there any insight into what the seller expects?”

  “My Patron is a member of the Senate Public Services Committee. A privatization transaction like this falls within the committee’s portfolio. The best information I have indicates anything over seven hundred will work.”

  “So much has been going on”, Robin offered with a touch of guilt in her voice. “I haven’t updated the model in more than a week. The last update reflected the weakening of the Real against the Dollar and the downward pressure on the economy both of which are related to the election and the broadly held expectation of a win by Lula. Seven hundred is 25 million above the top of the week-old range and if the model were updated today it would probably be closer to 30 or 40 million high.”

  von Lieghter chuckled and started scratching his chin again. “The amount to be offered is a political and not an economic matter. Your economic model is based on your best assumptions regarding perhaps the next five years. Geopolitical forces can change in minutes. National economies can suffer reverses or improvements in a matter of months. The world economy can completely change direction in two to five years depending on the strength of the triggering mechanisms. We are looking at BrasTel for the long term. There will most certainly be ups and downs in Brazil and in the world. Who can tell what any of them will do to the value of BrasTel. However, one thing has become quite clear, over the long term, decades and generations, asset values have increased as has their earning capacity in current currency measures. A good example is Germany’s Krupp Steel. During the last Great War, it was just about bombed out of existence by the Allies. Today Krupp is once again a worldwide industrial giant worth much more both in current monetary units or inflation adjusted monetary units. Yes, seven hundred may appear high today but within our time horizon and expectations it is not.”

  I felt obligated to give my client an additional consideration, “BrasTel is essentially a technology company and the pace of technological development is redefining the ‘long term’.”

  “Ahhh, you have spent too much time among our American friends. A company’s Directors cannot sit back and allow the market to determine its future. They must carefully and continually define and redefine their company’s mission and methodologies so the company remains ready to fulfill its mission from one technology to the next. BrasTel’s mission is broader than simply communications. It is the linkage necessary for society and its members to identify, absorb and redistribute the changes, both good and bad, that they are constantly faced with and to do so with ever increasing efficiency, timeliness and clarity. Do you agree?”

  “I do and I also understand our opening bid should be just below seven hundred, say six hundred ninety, and we will negotiate up from there.”

  von Lieghter began rubbing his chin while turning the number over in his mind and assuming his well-practiced air of command, “Ah … six ninety is a good starting place. It leaves ample room for the politicians to win another hard-won victory for the Brazilian people. Sra. Luz, please draft an offer letter with that amount in it along with all the correct Brazilian legal words for me to sign. Naturally you will do so subject to Mr. Matthews’ advice.”

  Alana and I nodded agreement almost as two trained monkeys would and von Lieghter continued on, “While the two of you are busy perhaps Miss Robin will assist me in calling Austria so I can start the thirty-five million US coming this way and then join me for lunch. Ah, yes, Sra. Luz, please do not include too many contingency clauses in the draft. They make people nervous.”

  “Here in Brazil an offer letter usually contains endless contingencies. If our letter is too thin the opposition politicians can easily say we are not serious about the deal.”

  “Perhaps, but I think thirty-five million US promptly deposited in their lawyer’s trust account will have a louder voice about whether we are serious or not.”

  Uncharacteristically Alana hesitated a moment, “Maybe we can make it look more like a European letter, shall we say your style and not a local creation but one that relies on something the buyer has used before accompanied by an English version. I’m sure Carl has some examples we can use as guidance.”

  “Good, but be sure to say the Portuguese version is the senior document and the English version is present for convenience only. In the accompanying transmittal letter tell them the buyers’ first language is German but they are competent in English therefore the presence of the convenience version. Now, if you will excuse me, there has been too much excellent Brazilian coffee.”

  Robin was out of her chair as soon as von Lieghter closed the door behind him, “Me too, the coffee’s wonderful but …” and was out of the room by the other door leaving Alana and I looking at each other.

  Alana spoke first, “What’s bothering you Carl? I’m the same girl you spent the weekend in the country with. The same one you are planning to take shopping in New York for an engagement ring.”

  “It’s hard to put in words … I, well …”

  “Yes …”

  “I don’t think I told you I was married before and we … well, simply put, the marriage failed. It failed because of me. I never really understood Kelly, not when we met and not when we were married. I don’t think I ever tried to understand her and what she wanted.”

  “I don’t think you have any deep scars you are carrying with you. I would have sensed them.”

  “There has to be some but that’s not it. It’s seeing the other side of you … suddenly I started to realize the dimensions, the many sides, of who you really are and then realized I was making the same damned mistake again. I haven’t made any effort to learn about you, to understand you. I’m on the path of failing again, failing you as I did her. I really don’t want to do that to you, us. I don’t know … I feel as if I’m talking in circles. Am I making myself clear?”

  “Maybe, not really. Why don’t we take care of our client first and then we can have dinner?”

  “Now you sound like me.”

  “Of course I do because we are very much alike except I look better in a dress. Maybe your wife was so much different your lives and expectations could not be reconciled. I took a family law course at Harva
rd and learned an appropriate legal term … irreconcilable differences. It could be the two of you were probably never honest with each other but were in fact acting out what some storybook said marriage was about instead of being open and sharing so you expected to build for your own lives.”

  “You make it sound so … clinical … so.”

  “That’s how I was taught to think Carl. My Guardian insisted I learn to strip away anything that could cloud my judgement and be honest with myself. I do and I am. Believe me my eyes are wide open, I know what I want when I see it and usually have no trouble figuring out how to get it. Now, we should concentrate on what we have to do for our client now. There will be plenty of time for this conversation later in the evening.”

  About three hours later Alana and I agreed on a draft, the fourth we had done, and called Robin in to read it. Over the hours the letter began to look less European and more Brazilian but I in the end agreed with Alana that it was necessary because of the audience that would be reading, and more importantly, evaluating it. The point that I found hardest to swallow was that my firm would be issuing the letter on behalf of my client. The compromise was that a full and complete description of the client and his organization filled one of the comparatively few sections of the letter. The order of the sections also was quite different than in Europe. They consisted of ‘The Offer’, ‘The Property’, ‘The Buyer’, ‘Proposed Closing Schedule’, ‘Final Diligence Procedures’ and ‘Failure to Close Penalties and Breakup Fees’.

  Robin sat at Alana’s laptop and scanned through the draft, “No damned drama, you tell them the offer right up front. There’s almost no legalese or double talk to confuse everyone. If you tried this is in the US or UK they’d think you’re crazy. But, I like it except for the fact that my firm is signing the letter and the buyer is just initialing each page and signing a legend that he’s read and agrees with the content.”

  Alana responded before I could open my mouth, “The obvious purpose of the initials and legend is to signify the buyer has read the letter and agrees with its issuance as it says in the legend itself. From your point of view what is important is here in Brazil it is usually enough to keep your firm out of the stream of legal liability if things get ugly. Also here in Brazil doing it this way provides the Investment Bankers with a tangible and visible basis to collect most of their fees even if the deal breaks up.”

  Robin slapped her hand down on the table, “Sold to us greedy bankers. I’ll put it on our letterhead. von Lieghter went off somewhere with his driver after our lunch and said he would be back in about two hours. Also, there’s some lunch waiting for you in the kitchen even though it’s almost time for dinner. Alana, I’m getting a disk to transfer the letter to my machine, is there anything I need to know about your laptop so I don’t destroy it.”

  “No, this one is really a US machine working in English. There aren’t any trick security controls you need to worry about. I have another laptop for local work that was bought here and has all Portuguese programs on it.”

  “Great, have you thought about how we’re going to produce the Brazilian Portuguese and German versions?”

  “No because all I need do is call the translator from my office as soon as you produce a clean English version and it’s approved by Dieter. Something relatively short using plain language like this should take about an hour or two to translate into each language and then to certify them. In the morning I’ll have a notary standing by to notarize the three original documents and four copies when we are ready to sign. The seller’s copies should be delivered between eleven and noon tomorrow.”

  Robin stood, “Guess I’m holding everyone up. As you said it’s a short plain language document so it should take me about a half hour to proof read it and suggest any edits I think necessary.”

  “Good, Alana and I are going to have some lunch.” But, von Lieghter was announced just after we started. For some unknown reason I thought Alana and I would be able to have a few words in private but that turned into nothing but wishful thinking when she volunteered to go to the lobby to get him.

  Minutes later he came through the door propelled by a whirlwind of energy, “Ah, São Paulo is a wonderful place. The Deutche Bank manager insisted then took me for coffee and pastry just behind the Bank. I told him I had eaten lunch not so long before but he still insisted it was the best place to wait until our documents to come in. Ah such pastry, it was just marvelous, almost like Vienna. I will not have to eat again for at least a week.”

  He rummaged through his jacket inside pulling out an envelope, “This new internet is wonderful. Yah here, it is my contribution to the offer letter. Confirmation that the thirty-five million US Dollars was received by the Brasilian Central Bank and to be further directed to the trust account of the seller’s attorney when I instruct Deutche Bank.”

  More than surprised I sputtered, “How did you get the banking information? The earnest money is customarily not moved by a buyer until after an offer is accepted.”

  “You worry too much Carl. Our offer will be accepted. In any case our mutual friend in Vienna assured me he can recall the wire if necessary. It was simple to get the attorney’s bank information. He gave me his business card and I called him to ask that his treasurer call Deutche Bank. So, the treasurer called my banker who was expecting him to call.”

  “I hope you’re right Dieter. I’ve found Central Banks in emerging economies like Brazil don’t like to send back lots of Dollars if they can find a way of avoiding it.”

  “I am confident our offer will be accepted Carl. I have other assurances it would be better for me not to discuss so for your purposes rely on what Herr von Salzbeck tells us please. Does Miss Robin have the letter prepared?”

  Robin yelled from the other room, “Just a few minutes more.”

  “Good, I have made a reservation for a flight home tomorrow night. I spoke to my wife’s doctor and all is well. I will sleep well tonight and if we can be finished no later than four o’clock tomorrow afternoon I will leave everything in your hands and return home. When you receive their proposal we will do what is necessary by telephone.”

  “I think you will meet your schedule quite comfortably Dieter. Alana has a translator standing by to translate and certify the translations tonight. They should be done and available for midmorning. When you come tomorrow please have your passport available because there will be a notary here to notarize our signatures so you will need identification.”

  “I see Alana is her usual efficient self.”

  “She certainly is. Also we have decided to have three versions. It made sense to add a German version because your investment group is in a country where German is the official language and any banking or registrations may require a German version.”

  “Very considerate, you have made it easy for all the clerks who will add their purple ink stamps to the documents when we file copies in Vienna. For the rest of us English will be good enough. After the war the Americans made it clear we could not conduct cross-border business of any size in any language but English. In their own simple way they were harder to deal with than you British.”

  “The draft is ready for review.” Robin hurried in and started to distribute copies of the seven-page draft. “It’s certainly short and sweet. For this size deal an offer letter in the US or UK would be twice as thick. Lawyers here must not charge by the pound.”

  “We don’t have to. Our billing rates when you consider domestic purchasing power are high compared to those in developed countries.”

  “Don’t let the US lawyers find out. It’ll kick off a billing rate war.”

  von Lieghter stood copy in hand, “I will go to the other end of the room and read this and then we will compare comments, yah.” Twenty minutes later he returned to the where the three of us were waiting, “Are we ready? If so I have only one comment I consider important.”

  I looked to Alana and Robin, “It seems we are ready Dieter.”

  “So, my
comment concerns the definition of ‘Adverse Finding’ under ‘Final Diligence Procedures’. The draft uses only qualitative measures like ‘significant’ and ‘material’ that are themselves undefined. I suggest we also include a cumulative basket test that says something like ‘if the cumulative adverse findings exceed either 7.5% of the average of the last three year’s pre-tax earnings or 10% of tangible net assets value at the date of the most recent audited financial statements then the buyer may withdraw or modify its offer contained in “Section I” of this letter without prejudice or cost and his earnest money shall be refunded.”

  “That certainly sharpens the teeth. What’s on your mind, Dieter?”

  “The possibility of a pre-closing raid is my issue. BrasTel has two assets that could easily be removed … of course cash and there is the undeveloped land it holds. At the last audited balance sheet there was Brazilian currency equivalent to almost a billion US Dollars. Also, most certainly of greater value, a footnote in the last audited financial statements described fourteen major and group of twenty more land holdings not currently used in the Company’s operations. These assets could be moved from the company in the last hours with the stroke of a pen and in doing so greatly reduce the value of the target entity.”

  “Those are the kind of things that are usually covered by seller representations and warranties in the closing documents.”

  “I would accept that protection except representations and warranties of management based on its reasonable knowledge may not be as comforting in a government owned entity where a committee of the legislature goes far beyond the role of investor/owner and is involved in that day-to-day activities at the Company.”

  I looked at Alana, “Is that right? Does the legislative committee meddle around in the Company?”

  “I don’t understand the word meddle in this context. The mandate of the legislature for the committee includes the duty to closely understand and supervise the daily activities of the public utilities that fall within its responsibilities. To fulfill this portion of its mandate the committee has its own staff of professionals, the supervised companies provide permanent offices for these professionals to use and there have been instances where individual professionals have confused their personal interests with those of the committee and the shareholder.”