Incra requests cancellation of the sale of Eldorado to Paper Excellence

O Incra (National Institute of Colonization and Agrarian Reform) issued letters to the CVM (Securities Commission) and for the Jucesp (Commercial Board of the State of São Paulo) asking that the transfer of control of the Eldorado Cellulose for the Indonesian company Paper Excellence. The request is based on laws that restrict the purchase of national territories by foreigners. Eldorado is controlled by J&F Groupwhich in 2017 closed an agreement to sell the company.

According to a technical note issued by Incra on December 21, 2023 (complete in PDF – 193 kB), the purchase and sale contract signed between J&F and CA Investment, a subsidiary of Paper Excellence, required prior authorization from the National Congress and the institute itself due to Eldorado being the owner and tenant of properties that would be transferred to the foreign company.

Incra says that no authorization was issued in this regard and, therefore, the contract would have violated the laws 5,709 of 1971 It is 8,629 of 1993in addition to the decree 74,965 of 1974 and from Incra Normative Instruction 88 of 2017devices that establish limits and regulate the purchase or rental of properties by foreigners.

The legislation requires authorization from Congress in certain cases, such as the acquisition or leasing of areas above 100 modules for indefinite exploration by foreign legal entities, requiring prior authorization from the Legislature. Eldorado's properties, which have 14,464 hectares of land, exceed these limits.

“Such negotiation, although immersed in judicial contention, under the terms concluded contractually, represents the acquisition of a company that owns and leases rural properties by a company equivalent to a foreign one, that is, such equivalence obligated the buyer to request prior to the conclusion of the contract with the bodies competent”says an excerpt from the technical note.

As the necessary authorizations were not issued, Incra maintains that the transaction “it is null and void, under the terms of art. 15 of Law No. 5,709/1971, with the solution being the undoing of the business entered into in 2017”.

In the letters sent to the CVM (complete in PDF – 158 kB) and Jucesp (complete in PDF – 159 kB) on December 28, Incra communicates its technical conclusion and requests that the appropriate measures be taken by each entity to “avoid the formalization of the business in the absence of authorizations from the competent authorities”.

Eldorado issued a relevant fact this Tuesday (2 January 2023) regarding the Incra note. The company says that “will guide its shareholders to adopt the appropriate measures which, under the terms of the technical note, include canceling the acquisition and, if both parties are interested in a new transaction, requesting Incra and other competent bodies prior authorization for the deal”. Here's the complete of the statement (PDF – 125 kB)

Incra's argument was the same as that pointed out by the TRF-4 (Federal Regional Court of the 4th Region) in decision July 2023. At the time, federal judge Rogério Favreto suspended the control transfer process as he understood that Paper Excellence did not meet the requirements due to the lack of approval from Incra and Congress when signing the contract.

DISPUTE

Eldorado is one of the largest cellulose producers in the country, with a manufacturing unit in Três Lagoas (MS) and a port terminal in the Port of Santos, from where it exports to 40 countries. It was founded in 2010 by the J&F Group, owned by brothers Joesley and Wesley Batista.

In 2017, J&F Investimentos signed a contract to sell 100% of Eldorado Celulose's shares to Paper for R$15 billion. The transfer of 49.41% of Eldorado's shares to the multinational was carried out, but the remainder of the agreement was not concluded.

The dispute between J&F and Paper Excellence began in 2018, when Paper Excellence's 1-year contract to acquire 100% of Eldorado Celulose's shares expired and began to be discussed in court.

WHAT COMPANIES SAY

O Power360 contacted the two companies involved in the dispute over Eldorado Celulose to ask if they would like to comment on the note issued by Incra.

J&F Investimentos stated that it was aware of the position and that it is identical to others already expressed by the AGU (Attorney General of the Union) and the MPF (Federal Public Ministry). He declared to wait for the “Paper Excellence’s agreement to the amicable and voluntary dissolution of the business”. Read the complete of the group’s demonstration (PDF – 115 kB).

“Due to Incra's technical conclusion that the Eldorado sales contract could not have been signed, and considering that the AGU has already stated in three opinions that 'the consequence is full nullity', J&F awaits the agreement of the Paper Excellence for the amicable and voluntary termination of the business, as recommended by the municipality, with the return of the amount already paid, thus avoiding even more serious losses to Eldorado's operations”stated J&F.

Paper Excellence said in a note (complete in PDF – 435 kB) that Incra “recognized the validity of the Eldorado Celulose purchase and sale contract and that the cancellation of the deal can only occur by mutual agreement between the parties”. The company stated that the institute's higher authorities must still comment and that it understands that the contract meets the concerns of Incra, the MPF and the Justice Department, “since the operation does not include the purchase of rural land, but rather an investment in an industrial complex”.

According to Paper, a cellulose factory was acquired in which “wood is an input and not the main activity, therefore it is not necessary to have rural properties or land leases”. The multinational says that Eldorado consumes a significant volume of wood through partnership contracts with Brazilian landowners and that it only owns 5% of the land it uses in its operations, which are located in urban areas.

“Paper Excellence trusts that Incra, in possession of all the data, will be able to make a definitive decision after clarification from the company. Paper also trusts that the authorities will act to guarantee legal security in Brazil, aiming to respect contracts and the law, without creating an unprecedented situation contrary to investments in the country”it says.