Relevant Fact Transcription CBD – Companhia Brasileira de

Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Operator:
Good morning ladies and gentlemen.
Good Morning, ladies and gentlemen. At this time we would like to
welcome everyone to Companhia Brasileira de Distribuição (CBD)
Conference Call. Today we have with us Mr. Abílio Diniz, Chairman of
the Board, Ms. Ana Maria Diniz, Board Member, Mr. Augusto Cruz, CEO
and Mr. Fernando Tracanella, Investor Relations Director.
Also, we have simultaneous webcast that may be accessed through
CBD’s website: www.cbd-ri.com.br/eng. Please feel free to flip through
the slides during the conference call. There will be a replay facility for
this call on the website.
We inform that the press release about the relevant fact announced
today is available at the Company’s IR website, www.cbd-ri.com.br/eng .
All participants will only be able to listen to the conference during the
company’s presentation. After the company’s remarks are over, there
will be a question and answer section. At that time further instructions
will be given. Should any participant need assistance during this
conference, please press *0 for an operator.
Before proceeding, let me mention that forward-looking statements are
being made under the Safe Harbor of the Securities Litigation Reform
Act of 1996. Forward-looking statements are based on the beliefs and
assumptions of CBD management, and on information currently
available to the Company. They involve risks, uncertainties and
assumptions because they relate to future events and therefore depend
on circumstances that may or may not occur in the future. Investors
should understand that general economic conditions, industry conditions
and other operating factors could also affect the future results of CBD
and could cause results to differ materially from those expressed in such
forward-looking statements.
We would like to point out that in this conference call we will only
comment on issues related to the New Corporate Governance Structure.
The topics related to 1st quarter 2005 earnings will be discussed on
Friday, in the earnings release conference call. Now, I’ll turn the
conference over to Mr. Fernando Tracanella. Mr. Fernando you may
begin your conference.
Fernando Tracanella:
Good afternoon everyone. This is Fernando speaking. First of all, thank
you very much for your attendance in our conference, in this beginning
we are going to have a presentation about the whole transaction made
by Ana Maria Diniz, our Board member, and after this we will be open for
questions that you may have. Please Ana.
Ana Maria Diniz:
Hello, good afternoon, it is a pleasure to be here with you and to explain
this chapter of this new transaction that we are doing, I will explain the
new corporate governance structure of CBD.
In the 2nd chart, we can see the previous shareholder structure, CBD
2
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
was controlled by a Holding Company called PAIC (Pão de Açúcar
Indústria e Comércio), that held 60% of CBD´s voting stake. Abílio Diniz
held 52 of PAIC voting stake, while other members of the family held
remaining 48%, and Abílio Diniz held directly 6.7 billion common shares,
10.6% of the total, other members of the family held directly 3.2 billion
common shares, 5% of the total, and Casino held directly on CBD 15.2
billion common shares, that means 25% of the total.
On slide 3, we can see the main facts of the transaction that created a
co-control force of CBD, by Abílio Diniz and Casino. The 1st step is,
Abílio Diniz exchanged shares of PAIC for CBD shares, receiving a total
of 26.4 billion common shares, in addition to the 6.7 billion common
shares already held by him. Abílio Diniz contributes with 30.5 billion CBD
common shares to a Holding Company, Casino contributes with 2.2
billion CBD common shares on the same Holding Company. Casino
acquires 50% of the voting stake of this Holding and 100% of preferred
shares, a total of 20.3 billion shares.
This Holding Company will become a new controlling shareholder of
CBD with 65.6% of the voting shares and, therefore, Abílio Diniz and
Casino will exercise a co-control over the Company. In this transaction,
what Abílio Diniz receives? He receives first R$1.0 billion that will be
integrally reinvested in CBD to a purchase of a Real Estate Company;
2nd, he will received US$200 million in Casino convertibles, and 12.5
billion preferred shares previously held by Casino. Out of the 2.6 billion
remaining ON shares of Abílio Diniz, and 1.2 billion will be swapped by
part Casino PN shares and 1.4 billion will be granted as call option to
Casino.
On slide number 4 we can see more clearly that the final structure
comprised by a Holding Company in which the voting stake is held by
50% to Abílio and 50% to Casino, Abílio will be the Chairman of the new
Company and will continue as Chairman of the operational Company
CBD. He will continue being in charge of the overall supervision of CBD
management and continue being the liaison between the executive
management and the Board.
He will have also a casting vote in the case of a tied or matters involving
the regular course of the business, so he will be in charge of 100% of
the management. The Board of CBD will be comprised of 14 members,
five members from Abílio Diniz´s side, five members named by Casino,
and four independent members, some of them are already a part of our
independent members of CBD´s Board. Mr. Augusto Cruz will remain as
a CEO of CBD and all the current executive management will continue in
the Company.
On slide № 5 we can see the details of the PAIC structure. Five minority
shareholders exchanged their shares for CBD shares receiving 7.5
billion preferred shares and 11.8 billion common shares. At the end of
this 1st step, PAIC minority shareholders will hold 7.5 billion preferred
shares and 15 billion common shares, already including their direct
3
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
stake. Secondly, they could convert from 7.6 billion to 13.6 billion ON
shares into PN shares.
Of the remaining 7.4 billion common shares they will grant Casino of 1.4
billion shares. Also, they will be able to sell in the market their preferred
shares, following a pre-defined schedule in order to avoid our over hang
of the shares. The schedule is the following: 7 billion immediately, up to
6 billion already being negotiated with a private investor or some private
investors. Seven billion from July 2008 to July 2009, and more 8.5 billion
from July 2010 to July 2011.
Back to slide № 6 we have the Real Estate transaction. We create a new
Company with the objective to reduce indebtedness and free a higher
cash flow for expansion and modernization to this deal and transfer 60
real estates to Abílio Diniz and receive R$1 billion and 30 million for it.
The transfer of these such stores shall be made by their book value,
higher than market economic value, to be conferred by an appraisal a
report is being prepared by La Salle. Such stores represent roughly 30%
of CBD sales, and will be leased in the Company for them for 40 years,
under the terms of lease arrangements following market practices, so we
will pay as a rent 2% of the gross sales.
The slide № 7, I will pass to Augusto Cruz, who will explain the impact of
such transaction in CBD.
Augusto Cruz:
This is Augusto, good morning to everybody, thank you for coming to
this conference call. I am so proud to announce today that the CBD to
this operation once again is in line with the guide that we received from
the Board of Shareholders, which means that we must increase our
performance and our return on invest capital. To understand better this
real estate operation we will suffer the following impact: in EBITDA way,
we will, in a 12-month base, we will receive an increase in expense of
R$170 million, under the EBITDA line we will receive less depreciation
expense, of R$35.5 million and, with the money that we will receive in
cash, we will appraise this to reduce debt and save interest expense in
a12-month base of R$200 million.
If we have the positive impact that means R$235 million, less the
negative impact of R$170 million, we will have an increase in the profit
before tax around R$150 million. If we take 25% income tax we will
receive a net impact R$ 89 million, an increase in the net profit of CBD. It
means an increase in earnings per share because the same base of
shares in net cash flow because depreciation is not a cash impact, we
will have a positive cash flow impact around R$60 million.
On the next chart, № 8, I would like to confirm that we are going to have
a better return on invested capital by reduction of investment in capital
this operation liberated fixed assets in CBD changed by cash to pay debt
and then improve the rotation of capital. We confirm that we will go to
organic growth by opening new stores in new markets focused in Brazil
and improve our productivity through better operation and productivity
4
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
gains in same store sales. The new shareholder structure at the end of
the day is presenting chart № 9. At the end of the day this will be the
new shareholder structure Company.
The new Holding will have 65.6% of voting capital and 20.8 of economic
interest in CBD. Abílio Diniz will directly have 2.8% of common shares
and 13.4% of economic interest in CBD. It is important to highlight that
Abílio will have a significant amount of preferred shares, that means a
total alliance with the minority shareholders, because you know he will
directly have 28% of voting shares and 12.6% of economic interest. It is
also important to remember that very soon we will have an increase in
our free float to something close to 30% resulting from the sale of former
PAIC minority shares in the market as Ana Maria presented before to
you.
This means that CBD is now more stronger and in line with the guide
that we are deep work to present to our investors a better return, better
productivity, better profits, and better growth. To summarize all of these
operations and put the view about this transaction, I would like to pass
the word to Abílio Diniz, to conclude this part of the explanation. Thank
you.
Abílio Diniz:
Hello, thanks for coming to this conference call. I am happy in finishing
this deal. It was a long and tough negotiation, it took one year and a half,
and I already knew the negotiation with Casino would be tough, it was
the same in 1999, six years ago. I prefer this part, the tough and
aggressive in the negotiation and after the negotiation becomes soft and
I hope this time it will be the same, and I believe this, I have known these
people for six years and I am sure that we will have a very good
relationship.
I believe that the deal is good for everybody and all the parts, for CBD is
very, very good because it strengthened CBD; it allows CBD to do a
swap from the Real Estate for cash, this is good, we can cut all the
investment of CBD, and we used all the free cash flow that we have
every year to use in benefit to the Company, to use for a planned
growth, and this is very important for CBD.
For me it was important because it was a possibility for me to organize
my life, the future of my heirs, and I like this way to have all my things
very well organized. I used to say that I was sure to believe that I was
going to be alive forever, but I am sure to be ready to die tomorrow, if it
is the way, and I like to have all my things very well organized.
Another thing is the possibility that I had to give the way out for my
family, I am talking about my father and my sister, that had 48% in the
PAIC Holding, the family Holding, that you had. I am happy with this
possibility that they have, to go to make money in the market in a work
very well organized and a schedule organized during a period.
For Casino it was a very a very good deal because they could increase
5
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
the capital and allow the consolidation, that was important for them. And
for the market, I think it was very important for the market because first,
the people from the market, every time told me I would have just a small
free floating, and this small free floating is not good for the for the
dealers and I said, OK I will increase the capital, and the marketers said
to me “No, this is not fair because it makes a dilution for us, and this is
not good”.
Now I found a possibility to increase the free floating without a dilution
and I think it will be good for our shares. Another point, after this deal,
this transaction, I will keep around 16%, 61.6 billion preferred shares, I
think this is an important amount of preferred shares, and I will be in line
with the market, I think that the market can see that if Abílio has
preferred shares, I can wait for the preferred shares to increase. And I
think this was a very important deal for everybody and for all the parties
involved, but I only made this operation because I had the possibility to
keep the management in my hand.
Since the beginning I told to Jean-Charles Naouri that I wanted to go
ahead with this negotiation but I only will do this negotiation if the
negotiation will be possible, according my touch anything that I want for
my future. I do not want to see a wall in front of me, I do not see the end,
the finished line, for a stop with my work. My intention, while I will be
healthy and capable, I want to continue working and I have this
possibility. I have all the guarantees to keep the management CBD,
working, with my people, with my team, with Augusto and all the people
that work with me, OK?
This is my thinking and, to finish, we think to invest with this new
possibility in CBD, we are planning to invest R$2.0 billion in the next four
years. This brings the possibility to open up 40 hypermarkets, and 120
supermarkets, with the possibility to create new positions for new
employees, around 30,000 new positions of work in our Company. I think
this is our contribution for CBD but also the contribution with my country,
I think this is very, very important, OK? Thank you, and I am ready to
listen to your questions.
Operator:
Thank you, the floor is now open for questions. If you do have a
question, please press *1 on your touchtone telephone at this time. Our
first question is coming from Bob Ford, of Merrill Lynch.
Bob Ford:
Good afternoon everybody, I just wanted to follow up on a question from
the earlier call, and maybe it would be good to just outline what you
perceive the incremental protections are for PN shareholders as a result
of this transaction. What I understand is that the longer term put option
that are part based on the market flow which is a source of security. But,
you know, I think for many PN shareholders they are still concerning
matters for future, there might be some concern with respect to the
imposition of management in the long-term or other adverse transfers to
Casino, and its interest. What else is out there that could be a source of
confidence for long-term PN shareholders?
6
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Pércio de Souza:
Hi Bob, this is Pérsio, I worked together with Abílio and CBD on this
transaction, I think that what we were addressing here as a protection for
the minority shareholders, and then I asked Abílio to complete this with
anything it needs is basically because if Abílio holds a larger stake of the
Company, and to get his rights, he need to get, to have it at least in the
next ten years.
He will be negatively impacted if the preferred share price drops so,
basically, in the put that he has, he has no put in the preferred shares,
he has only the put on the voting shares at the Holding Company, and
even the put in the Holding Company it will be based on the market price
of the shares, and again there is another issue, as long as the Company
is having a good performance Abílio will have the right to be Chairman of
the Operating Company, with casting votes for the day-to-day business,
and Zito, of course, for any, let’s say larger, strategic transaction. So the
value of the Abílio stake will be pretty much linked to the value of the
preferred shares.
Abílio Diniz:
And, what I think is important, Bob, you can see I finished this operation
with around 10.2 common shares and 16 billion of preferred shares. You
see, the majority of my assets in preferred shares.
Bob Ford:
Thank you, Abílio. According to this press release, though, I am looking
at 15.2, is the correct number 16 or is it 15.2?
Pércio de Souza:
Indirectly, through SulSantos Abílio would hold one billion more.
Abílio Diniz:
Yes.
Bob Ford:
Great, and then, so, just to clarify, Abílio, in the last conference call the
conditions of your retention of the chairmanship of CBD and your casting
vote is in part predicated on your operating performance and your equity
interest, right? And I do not think I understood correctly your, in detail,
what kind of an operating performance is that control predicated on, and
I think you said you had to maintain the performance similar to what you
had in the past, can you provide a little bit more detail on it?
Abílio Diniz:
There is no detail because we agreed that if CBD follow with a good
performance, we did not specify, if we keep a normal, regular
performance it is good for CBD, for Casino and for me.
Pércio de Souza:
There is a comment, just to give you if you need any reference, the
comment is, there is what you call distressful in CBD, but that of course
is in a extreme case if the indebtness of CBD, for example, is 3.5 times
the EBITDA, if the EBITDA is lower than 4.5% and things like that,
Casino would have the call over the voting shares of Abílio, starting from
now.
So, on the two consequent years of a distressful situation. But, anyway,
the only reference to performance that we have to the Company refers to
the distressful situation. There is no notice specific to keep an eye on the
7
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
performance in which Abílio should meet in order to avoid his removal
from the chairmanship.
Bob Ford:
Great, thank you Pérsio, that makes a lot of sense. And then, in longer
term, is there any family trust or foundation that would have a veto right
that would protect our interests from the imposition of Casino
management against these, or again, any other adverse change of
pricing elements?
Pércio de Souza:
Yes, as long as Abílio and the heirs hold 12.5 billion shares either
preferred shares, let’s say, at CBD, they are going to have a basket of
veto rights to protect for, let’s say, capital increase with the assets, for
example, amalgamation, acquisition, or anything without a fairness of
opinion and things like that. And they are going to keep three Board
members in the Company. We are talking here about something beyond
year 10 of this agreement, if that is the case.
Bob Ford:
Great, thank you very much Pérsio.
Operator:
Thank you. Our next question is coming from Alexander Casas, of Ixis
Security.
Alexander Casas:
Good afternoon, Alexander Cazas, from Ixis, in Paris. Congratulations
for the deal, I have two questions, the first is about Real Estate
transaction. Why only due transaction of Real Estate about a part of the
Company referred of the total sell and not the totality of the Real Estate
of CBD, that is the 1st question. The 2nd question is about the press
release on page 3 which says that Abílio Diniz could reinvest part of the
proceeds in any put interest of Casino Group and with such investment
Mr. Abílio Diniz would become the five largest held of Casino Group.
Could we have more detail about that deal and how much exact amount
would be invested in Casino share and with what timing? Thanks a lot.
Abílio Diniz:
Thank you for your question. I will answer the 2nd question first. We are
in discussion of the way of this participation, the amount is already
decided, US$200 million, but the way to do we have not decided. We
have to take a little bit more time to clarify this to you, OK? The 1st
question Augusto, could you answer the 1st question?
Augusto Cruz:
It is so easy the answer to the 1st question, it was possible to deal with
CBD, Casino and Abílio Diniz. It is a very high investment in Real Estate,
it is R$1,029 million, it is a large tranche; it is difficult in Brazil to have
this Real Estate operation, that is why in the beginning my explanation, I
told that I was so happy.
For the remaining owning stores, as from time to time CBD will be able
to analyze the market and try to do a same Real Estate operation with
the market if it is possible in a good condition like the one we just
finished, because our main business is retail, in food retail, not in Real
Estate business like the same thing that happened in other enterprises
around the world.
8
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Alexander Casas:
OK, thank you for your answers.
Abílio Diniz:
Thank you.
Operator:
Thank you. Our next question is coming from Juliana Rosenbaum of
Deutsch Bank.
Juliana Rosenbaum:
Hi, also as a follow up on the previous call, given that now we know that
the Holding Company is in bounding numbers composed of 10 billion ON
shares from Casino, 10 billion from Mr. Diniz and another 10 billion PN
shares for Casino, I would like to know how we conciliate that with
Casino’s information on its press release that they have 74% of the ON
shares. In fact I only got the 74% of ON shares because I assumed that
all the 20 billion shares that Casino has are ON shares.
So, am I doing anything wrong or this per transparency, this by
transparency thing that you write here, does that mean anything that I
am not being able to understand?
Pércio de Souza:
OK, everything that we are discussing here is by transparency. I think
that in your calculation there is 2.2 billion preferred shares that Casino is
injecting. If you remember, at the beginning of this transaction Abílio
transfers 30.5 billion holding shares to the new Holding, and Casino
would contribute with 2.2 billion shares, OK? So, first…
Abílio Diniz:
by transparency…
Pércio de Souza:
Yes, any calculation there is in here is by transparency.
Juliana Rosenbaum:
Which means that you account for ON share the same way that you
account for PN shares?
Augusto Cruz:
One PN share in the holding company is equivalent to one ON share of
CBD.
Pércio de Souza:
Sorry, can you repeat your question please?
Juliana Rosenbaum:
Casino says in a table, on page 9, that they have 74% of ON shares.
The only way to get this 74% is exactly if you sum of 20.3 billion shares
plus the 2.2 billion shares, so we would consider all of it to 22.5 billion
shares as ON shares. But the total that they have is 100% of the PN
shares as well, so I assume it is this 22.5 in half ON and half PN. So,
how does Casino get the 74% if they have PN shares?
Pércio de Souza:
OK, what we are saying is by transparency. Having, let’s say, 60
something percent of the holding company by transparency, either
through preferred shares of Holding shares we would go indirectly to
74% of the voting shares of CBD, they will have this direct sake as well.
So, they are considering that the preferred shares they have on the
Holding Company would represent voting shares at CBD, that why there
is answer in this calculation.
9
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Juliana Rosenbaum:
OK, so, do their PN have voting rights?
Pércio de Souza:
No, no, no, is just a way of them telling by transparency their stake in the
holding company would represent how many Holding shares of CBD.
This is just an analogy, nothing else.
Juliana Rosenbaum:
OK, thank you.
Pércio de Souza:
The voting shares, just to conclude, is the only on the percent on the
Holding Company, and neither the voting shares that they have directly
to CBD they cannot vote, only to holding company as well. So the
controlling, the shareholders agreement is based on the holding
company.
Juliana Rosenbaum:
So that is how you reconcile the fact that is stated there is 50-50% ON
shares in the Holding Company and they tell us a different number,
right?
Pércio de Souza:
Yes, yes, because they have 62% of the Holding Company, 67%.
Juliana Rosenbaum:
OK, thank you.
Pércio de Souza:
OK, thank you.
Operator:
Thank you. As a reminder, the floor is still open for questions, if you do
have a question please press *1 on your touchtone telephone at this
time. Our next question is coming from Lore Serra of Morgan Stanley.
Lore Serra:
Good morning, I actually have a couple of questions, actually good
afternoon, let me go back because I was not on the other and I am not
sure if I understand the issue in terms of the Holding Company shares. If
I understand correctly there is 32.7 billion CBD ON shares that are at the
holding company level. Is that correct?
Augusto Cruz:
That is right.
Lore Serra:
And of those shares, what is the number of shares that Casino will own?
Augusto Cruz:
At this moment, just to begin, 2.2 billion shares.
Lore Serra:
OK, but after the transfer of the shares from Abílio to Casino or after the
sale of those shares, what number it will be?
Augusto Cruz:
22.3.
Lore Serra:
22.3 total, right?
Augusto Cruz:
Yes, total.
Lore Serra:
That’s the all ownership shares.
10
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Augusto Cruz:
Yes.
Lore Serra:
OK, so if I add all that together we are going to see the holding
company, we are going to see 68, I guess I did not understand the
distinction you were making before. I do not see how Casino owns any
PN shares, the way I look at it, once the sale of the shares happens from
Abílio to Casino, Casino will own ON shares at the Holding Company
level, correct?
Pércio de Souza:
Casino will have voting shares and PN shares at the Holding Company
level.
Lore Serra:
What are the PN shares they are going to own a the Holding Company
level, because I thought the Holding Company was just ownership
shares.
Pércio de Souza:
No, OK, let us start over, I will try to explain since the beginning. You
have the voting shares of CBD, and Abílio will have 30.5 voting shares of
CBD and with this 30.5 voting shares of CBD let us assume that he will
split, he will get 20.4 voting shares of CBD and increase the capital of
the Holding Company, receiving voting shares of the Holding Company,
OK?
Lore Serra:
OK.
Pércio de Souza:
OK, you will need some further steps because then you will understand.
Then Abílio would hold 10.1 of other voting shares of CBD and then he
will have a captive contribution in the Holding Company receiving PN
shares of the Holding Company, so he contributes on the Holding
Company 10.1 voting shares of CBD but he receives PN shares of the
Holding Company, so, by transparency, he would hold 20.4 plus 10.1
representing 30.5 voting shares of CBD, but at Holding Company level
he would get 20.4 voting shares and 10.1 PN shares.
Then comes Casino, another captive contribution of 2.2 billion voting
shares of CBD, because of the captive contribution, receiving PN shares
of the Holding Company, so Casino would hold 2.2 PN of the Holding
Company, and then the Holding Company would hold, let us say, 32.7
billion voting shares of CBD. Did you follow me?
Lore Serra:
Yes, but I think you are making it more complicated than it need to be,
the Holding Company solely on 32.7 billion ON shares of CBD, now that
is a fact, now give me the structure of the equity of the Holding
Company, because that is where you confuse me.
Pércio de Souza:
OK, the Holding Company will have 20.4 voting shares, and 12.3 PN
shares.
Lore Serra:
OK, that is the total of, let me just make sure I understand this, that is the
total of 32.7 million shares of the Holding Company?
11
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Augusto Cruz:
Yes, yes, it is one by one, yes.
Lore Serra:
OK, and what is the ownership of Casino versus Abílio in the Holding
Company?
Pércio de Souza:
OK, in the 2nd step Casino is going to buy 10.2 billion, 50% of the voting
shares that Abílio holds, and 100% of the PN shares holds of the
Holding Company. So he is going to buy 10.2 voting shares and 10.1 PN
shares of the Holding Company, in a total of 20.3 billion shares. So
Casino holds 100% of the PN shares of the Holding Company and 50%
of the voting shares.
Lore Serra:
OK, that is helpful. The Casino press release also talked about the fact
that Casino is going to have the possibility of getting additional CBD
preferred shares as a result of transferring tax benefits from goodwill to
CBD. Could you come through this a little bit more, to help us
understand that?
Augusto Cruz:
Lore, as you know, when Casino bought these shares and compared by
the equity result (“equivalência patrimonial”) with CBD, Casino will make
a goodwill, (“ágio”). This “ágio”, in Casino hands, will not be transformed
in cash, then Casino and CBD intend, without losses for the minority
shareholders, to contribute with this “ágio”, that can save a lot of money
in income tax for CBD. If and when CBD is able to make this “ágio” cash,
CBD will raise new shares to pay this contribution of Casino.
Lore Serra:
OK, I just have a new question. Does that mean that CBD is going to be
carrying the goodwill created from Casino on its balance sheet and, 2nd,
how do you determine the value of the shares that you will be issuing to
reimburse Casino?
Augusto Cruz:
In our balance sheet it will appear like a raise only when we do this
operation, and when we will raise these new PN shares it will be at the
fair market price and Casino already agreed with us if CBD makes, for
example, R$100 cash save in tax income, CBD will raise only 8,
equivalent to R$ 8 of new shares at the fair market price.
Pércio de Souza:
So it is a 20% discount on the benefit for the Company, and there is a
provision that will, at the Company´s discretion, the Company would be
allowed to implement a buy back or either if there is a structure if it
allows the Company to withdraw the shares that Casino acquired, that is
going to be implemented in order to avoid dilution if that is the case in
the future.
Augusto Cruz:
And, Lore, I can tell you that minority will not suffer and it will be a very
good operation for CBD because it is an equivalent to raising capital with
a discount for this increase in capital.
Lore Serra:
OK, I guess the accounting of it is a little unclear to me, but I can follow
up. Just a couple of more questions, are the PN shares that Abílio was
receiving when he sells his common shares to Casino, is there any lock12
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
up associated with those PN shares?
Augusto Cruz:
Yes, we have 11.8 billion shares will be locked up for the 1st year and the
other 9.3 would have the lock up for four and a half years, but his
intention is not to sell, this is a mere formality we have this lock-up
agreement with Casino.
Lore Serra:
OK, I guess my last question is the most general, when you work with
Casino for now I guess six years, five and half to six years… They are
putting a lot of capital to work here and increasing their stake in the
Company, how do you expect, you know, them to get themselves
involved in the business? I mean, it sounds like you are talking a lot
about maintaining control , but I feel that Casino has some views about
how they want to put some of their management in place, and alike.
Augusto Cruz:
Lore, you know that Casino and CBD were so busy in the recent past to
make and build a great history. I am looking for work for more integration
with Casino mainly in South America, because Brazil is starting to be like
the headquarters of Casino in South America.
As you know, Casino has a good stake in Colombia, Venezuela,
Argentina and Uruguay, and we will have more integration with these
operations and improve bargaining power while we improve the line of
merchandise, and bring to our customers new things and new ways.
And Abílio is a Board member of Casino in France and we intend to
increase a lot joint, common collaboration, and common pursuit like
general merchandise, technology equipment, IT, software and a lot of
things that we can do now with more interest of Casino and us, OK?
Because now we definitely got married.
Lore Serra:
OK, I just have two follow ups. I mean, would you anticipate that people
from Casino would take significant management positions at CBD and,
you know, are these initiatives that were not in place or are you just
going to strengthen those initiatives, I guess that is not clear to me.
Augusto Cruz:
In the future, yes, now there is no change because we are doing a very
good job, we are going forward, we have a lot of energy to do business
in Brazil and go forward, and then I can assure you in the short term the
actual management of CBD will continue.
Lore Serra:
OK, thank you.
Operator:
Thank you. Our next question is coming from Daniela Bretthauer of
Santander.
Daniela Bretthauer:
Hi, good afternoon, just a follow up on the what you have said, both in
the Brazilian and English call, is the CAPEX for the Company going
forward, the official capital expenditure program and store opening,
should we assume now 40 new stores per year and something like
R$650 million because you talked about 150 stores over a four-year
13
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
period, and 2.5 billion of CAPEX, so, I was wondering if this is a new
guidance that we should approve in our model going forward?
Augusto Cruz:
Yes, Daniela, and have in mind this, only for new stores, organic growth,
we will present this four-year investment planning in the next Board of
CBD and we must a new software organization training in Human
Resources, store revamp, warehouse logistics, then we must add other
investments to keep our increase in productivity.
Daniela Bretthauer:
OK, thank you.
Operator:
Thank you, our next question is coming from José Galvan, of BBVA
Securities.
José Galvan:
Hi, good afternoon, three repeating questions, but I will not follow the
final comments about the goodwill. Once you materialize the goodwill
and the savings coming from that line, how are you going to calculate
the price on the increase in the number of shares? Thank you.
Augusto Cruz:
José, again, if and when this goodwill can be transformed in cash, we
will raise the PN shares at the market condition and fair price of market
for PN shares, and the total amount that CBD will cash, we will write only
80%, which means that CBD will receive a 20% discount from Casino.
José Galvan:
OK, thank you very much.
Augusto Cruz:
Thanks, José.
Operator:
Thank you, our next question is coming from Tina Barroso, of UBS.
Tina Barroso:
Hi, Tina Barroso here. Just to clarify, Abílio has the casting vote on the
day-to-day operations, it says in the press release, and what about the
casting vote on management, you know, the more major strategies in the
next eight years?
Augusto Cruz:
Though any strategic decision and then you are talking about the
acquisitions or selling the Company, anything like that but changing
bylaws and anything like that it would not happen, it should happen in
unanimous consensus.
Tina Barroso:
So you guys have a consensus, OK; and a follow up, do you have an
estimate of the total goodwill Casino is saying.
Augusto Cruz:
Yes, it should be at the present value you know that this is not indexed,
so it should be a nominal value, but as of today that would represent in
total roughly 220 million, US$230 million.
Tina Barroso:
And under the Real Estate operation again, do you have the market
value to give us or are you updating that value right now in order to
study it?
14
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Augusto Cruz:
Yes, we will have the actual market value through the appraisal and we
will make it public for everybody, before our Board meeting.
Tina Barroso:
OK, and you us this at 30% of sale roughly, and what is the percentage
of the total stores CBD owns today?
Augusto Cruz:
In total sales it was around 42%, it means that remains 12%.
Tina Barroso:
I am sorry, can you repeat that? 30% of sales, right?
Augusto Cruz:
Yes, it is two thirds of the source.
Tina Barroso:
It is two thirds of the source and, in terms of value, like real estate value,
what is the percentage of the 60 stores. It is 23% of your PTNE, but I do
not know all of your PTNE is a, so.
Augusto Cruz:
It is 75%, Tina.
Tina Barroso:
75% of all real estate value?
Augusto Cruz:
Yes.
Tina Barroso:
OK.
Augusto Cruz:
OK, we are working with appraisal, sorry Tina, is 75% of own stores, not
including headquarters and the warehouses, and some pieces of land
that we have. I am talking about only stores owned by CBD actual is
75%.
Tina Barroso:
So the rest of the fixed assets that you have in your PTNE is the
headquarters and?
Augusto Cruz:
Warehouses, land, and some stores, yes.
Tina Barroso:
OK, and any new policy in terms of your dividend policy you think it is
going to change going forward after this change?
Augusto Cruz:
At this moment to increase the profit, to represent 25% represents more
money than the actual profit.
Tina Barroso:
OK, so nothing to comment (laughter). All right, thank you.
Augusto Cruz:
Thanks a lot, Tina.
Operator:
Thank you. Our next question is coming from Daniel Parker, of Bear
Stearns.
Daniel Parker:
Sorry, I need to go back to the Holding Company structure again. If I
understood correctly, the Holding Company has a total of 32.7 billion
shares, comprised of 20.4 billion voting shares and 12.3 billion PN
shares. Is that correct?
15
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Augusto Cruz:
Yes.
Daniel Parker:
OK, and then, within that, Abílio is going to sell 10.2 billion ON shares of
the Holding Company to Casino, and 10.1 billion PN shares of the
Holding Company to Casino.
Augusto Cruz:
Yes, right.
Daniel Parker:
OK, the other question I had, it was asked before but I did not quite
understand, at least arithmetically it would seem that Casino would have
ownership control of their stake in the Holding Company plus their other
stake or their direct stake in the Company, yet the Board is split evenly
between you and Casino, could you just explain how that works?
Pércio de Souza:
Yes, the stake that Casino has directly on CBD, they cannot vote, under
the shareholders agreement only the Holding Company will be able to
vote in any general meeting or the Board of CBD.
Daniel Parker:
OK, thank you.
Operator:
Thank you, our next question is coming from Luiz Carillo, of JP Morgan.
Luiz Carillo:
Hello everybody, just a quick question, what happens if there is a
change in control at Casino, with the shares that they hold in the Holding
Company, and is there any specific reason why the local peers for the
shares in the Holding Company fund some money.?
Pércio de Souza:
No, just the negotiation, there is no specific reason there. Can you
repeat your question please, Luiz?
Luiz Carillo:
Yes, what happens if Casino, if there is a change in control at Casino
level?
Pércio de Souza:
Yes, if there is a change in control at Casino level any third party
according to Casino stake would have to accept the shareholders
agreement as it is today.
Luiz Carillo:
And, in not changing, what happens to the PN portion of the shares of
the Holding Company, or actually the CBD owned by Abílio Diniz and
family?
Pércio de Souza:
No change.
Luiz Carillo:
OK, thank you very much.
Operator:
Thank you. There being no further questions at this time, I will turn the
floor back over to management for any further remarks you may have.
Ana Maria:
Thank you very much for your presence, I hope we could clarify the
transaction and thank you very much for being here with us. Thank you.
16
Relevant Fact Transcription
CBD – Companhia Brasileira de Distribuição
May 4th, 2005
Operator:
Thank you, this does conclude this teleconference, you may disconnect
your lines at this time and have a wonderful day.
17