Luiz Cezar Fernandes was once one of the richest men in Brazil and stood alongside Jorge Paolo Lemann at the beginning of the Garantia brokerage, before it became an investment bank. It was there that he met Lemann’s current partners at 3G Capital, Marcello Telles And Beto Sicupira, and helped take the first steps towards building today’s consumer business empire. The businessman spoke to VEJA about the billionaire accounting gap in the balance sheet of American shops.
For him, who participated in the purchase of the retailer in the early 1980s but then fell out with Sicupira when he wanted to sell the company, Americanas’ recent losses appear to stem from “a way to increase the dividend” and create “profit to pay executive bonuses”. He also stated that the practices probably started “a long time ago” e the group prepared to denounce the billionaire gap, Included leaving positions on the Board that could compromise them legally. In this conversation, he talks about how Garantia’s culture was one of aggressively seeking results, but without balance sheets, and assesses what could have gone wrong for Americanas having been embroiled in one of the biggest corporate scandals in the recent history of Brazilian capitalism .
What is the opinion of Mr. on the deficit of 20 billion reais in the budget of Americanas?
What was done was a way to create an artificial profit to raise the dividend. They have even gone to the extreme by delaying payment of suppliers. The supplier sold for 90 days, delayed and paid in 120 days. But that wasn’t enough, so he decided to hide the banks’ liabilities. I think it got to a point where we couldn’t do it anymore, they called (Sergio) Rial and said: “we have a problem, we can’t leverage anymore, come and say you have this here and here”. Because it is impossible for the Rial to discover a section in one week that no analyst has caught in these 50 years, a thousand analysts and no one has caught it. He’s a genius, but not that much. It had been arranged. “You say you found out, then we set about fixing it, then we pay the loss to the Family Office and the banks.” I think this started a long time ago.
Could it be related to short-term results related to the bonus payment calculation?
Of course yes. Because you pay the bonus based on the profit. But they created the profit to pay the dividend and monstrous executive bonus, out of proportion to the actual profit the company was making. They inflated profits, paid executive bonuses, but who ran the store? Nobody? It was Beto Sicupira who was in charge. They came to the meeting and no one could disagree with him. We knew that it was. Every year they said: “ah, we increase here and distribute dividends”. And they came, taking advantage of the fact that the limit had already been reached, to sell an important position [das ações da empresa]. They knew that the problem would erupt at some point and that the stock would not stay at that price. The average selling price today has a huge drop. And they all left the board of directors. George [Paulo Lemann] and Marcellus [Telles] he passed away years ago*, but Beto [Sicupira] he left the board a year ago, with the excuse that the market didn’t accept him. In practice he was the controller, who was in charge and that’s it, but apparently he has become a reference shareholder. He ran the board every day, but technically didn’t check. Legally he has a very quiet position, if he has a trial from the Public Prosecutor and from the CVM (Securities Commission). Therefore, I think it was already in Rial’s plans to press charges.
Could this be common practice in 3G group companies?
I think so. We bought Lojas Americanas for $27 million and received $27 million in dividends in the first year. I thought it was normal at the time, but looking at it today, the problems may have started there. I presume. why beto [Sicupira] he was sitting on the chair, in the shop, and he wanted to show profit. Go public and buy control of a company for $27 million and pay $27 million in dividends in the first year? Why then didn’t the company pay earlier? You made that size of a profit in one year, really? It had some magic. Afterwards, the second magic was to make São Carlos [Empreendimentos], and then the next magical thing was joining B2W. In short, there has always been a bit of gymnastics to hide what is happening from the market [no balanço]. The last deal with B2W was a big discussion, because nobody understood that merger. Every year had a way and they thought they’d find out now. So, there’s no São Carlos, there’s no separation from Walmart, like they did half and half with Walmart in Brazil, and then they sold half to Walmart and walked away. All these big events that have happened from time to time have slipped the market a bit.
How was the culture of results at any cost created in Garantia, which ended up being a distinctive feature of the management of companies linked to 3G?
We got the result at any price, but operating against the market. Don’t invent profit. That was forbidden. This maybe started with Lojas Americanas which is why they never wanted to sell the company. We bought three shares to defend ourselves from the policy of Delfim Netto (former Finance Minister) who had set interest rates, monetary re-determination, all at 15%. We knew inflation would be higher, so we decided to defend it by buying stocks. We first bought Lobras, which was a competitor to Lojas Americanas, which we sold to Goldfarb, whose family now owns Lojas Marisa. With that money we bought Lojas Americanas, Alpargatas and Brahma. So, we sold Brahma and Alpargatas and never wanted to sell Lojas Americanas. One of the difficulties I had with Beto [Sicupira] it was because I wanted to sell, because our job wasn’t having shares in a company, but having capital in hand. This discussion started, I gave up and left. One reason for my departure was that Lojas Americanas did not sell. It was wholly owned by Garantia Banco de Investimentos and I had 10% of Garantia.
These companies may have developed an inadequate relationship with auditing firms?
I do not think so. What happens to an auditing firm is a shame. For example, Lojas Americanas hired a PwC. Then, the audit sends all the interns starting today there and tells them step-by-step what they need to follow through. In practice, in the end, the guys who will do the audit are the interns, and they do it on a sample basis. They give them samples they need to see. Guys are inexperienced and will swallow anything. Then the boss comes and signs. The responsible partner of Lojas Americanas was also responsible for the IRB, which was a big problem. In an identical case, which was Enron in the United States, the accounting firm went bankrupt.
And with the CVM and the supervisory and regulatory bodies?
I do not believe. CVM was born to regulate and promote the market and today it has a police action. That is, something has to happen to react. While nothing happens, it rings. Only when crises break out within the companies in which he works. B3 is also responsible, because it has an agreement with the CVM to supervise listed companies, and it has not done so. Therefore, the Stock Exchange and the CVM could see it, because they also look at the balance sheets and don’t see it. It’s not just PwC that has responsibilities.
Could other companies in the group have problems about to erupt?
It’s possible, but I’m not sure. There’s that old saying “he who makes one basket makes a hundred”.
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