For someone who lists the presidency of the Institute for the Development of Eucalyptus Applications on his CV, Jorge Armindo Teixera is remarkably personable. The main achievement listed on that CV is his position as the president and CEO of Portucel – Portugal’s leading pulp and paper manufacturer and the country’s best hope for a privatization in 2003.
And he says he has a vision. “The Portuguese have a problem,” he says. “We think small. We have to challenge ourselves.” He’s certainly doing that. Portucel has been on the government’s list of assets to sell since May 2001, in a deal that was scheduled to be completed by the end of 2002. But bad equity markets and a change of government have combined to halt those plans, leaving 55.7% of the firm in state hands. The remainder rests with retail investors and a 29.2% stake with Sonae, a Portuguese private-equity investor.
The first model for the privatization was simple. It called for the government to sell roughly half of its stake on the stockmarket. And a follow-up offer had a reasonable chance of success – the company’s stock price declined by just 1.7% in 2002, in contrast to the 25% slump in the Lisbon stock exchange’s PSI 20 index.
But on January 15 this year the government’s council of ministers released a new decree on Portucel that has sparked confusion and anger among bankers and investors. One senior Lisbon banker sounds exasperated but resigned to the new deal structure laid out by the decree. “The government has some objectives, and it is difficult to reach them all,” he says. “They want to sell and get the proceeds, and they want the process to be fair, but they want decisions about the company not to go outside Portugal. The new model is a good attempt to have all the objectives met. But it is more complex than a disbursement on the stock exchange.”
The newest new plan
The government now plans to sell up to 15% of the company’s share capital to a range of financial institutions, which will then sell those shares as a free float. Simultaneously, share capital will be increased by 25%. This will dilute the government’s remaining stake in the company, as well as the stakes held by other investors. Crucially, though, this stake will be sold to a strategic partner from the pulp and paper industry, through some transfer of assets and shares. All being well, this will transform Portucel from a middle-ranking European pulp and paper company into a big hitter, with international resources for production and distribution.
The government is set to clarify at the end of March which of Portucel’s assets could be sold, and at what price. At this stage, Armindo Teixera describes the decree as just a framework for the deal. An annual general meeting is needed to approve the plans. The minister of finance can still make changes, and the decree contains clauses to deal with the event that a suitable partner is not found. But Armindo Teixera seems confident the schedule laid out will hold, and he is working with UBS and local firms Finantia and BPI to structure the deal and complete what is likely to be a cross-border M&A transaction.
He laughs when asked whether the decree was produced in consultation with Portucel, or handed down from the government. “That is a difficult question,” he says “I can say this: the decree law is the responsibility of the government. I have dealt with six ministers of the economy.” He adds: “It is always a pleasure to contribute.”
Perhaps his toughest task is to convince existing shareholders of the deal’s benefits. Sonae is likely to be unhappy that its stake is diluted but unwilling to increase it significantly, as if it holds more than 33% it will have to launch a bid to take over the whole firm. Sonae and other existing shareholders are not allowed to participate in the share capital increase, but will be able to buy more shares from the free float later.
The incentive for holding on to existing investors is that they will hold stakes in a new kind of company. The firm has already shifted its focus to some extent – it used to be a 100% pulp company before it bought Soporcel in June 2001. Now 75% of its production is paper, which offers more stable prices. But it is difficult to develop further without some sort of international element. “If we succeed, Portucel will be the number one in the industry in Europe. To stay in a mid position would be a weakness,” says Armindo Teixera.
Privatization plans are notoriously unstable in Portugal. But if Portucel can make this deal work, it may show a way forward for the other companies slated for sale. And Armindo Teixera is phlegmatic and willing to work with whatever structure the government decides. If his firm does not do a straight equity offering, then it will follow the new plan for a strategic partnership. To do neither is not an option. Or, as he puts it: “If you cannot hunt with a dog, you have to hunt with a cat.”
