Brazilian Billionaires Engage in Feud Over Americanas Scandal

The accounting scandal at retailer Americanas SA is getting personal for Brazil's business elite, with billionaires facing off in court as market losses pile up.

This scandal has caused many losses for those involved, both in terms of money and reputation. It will be interesting to see how this plays out in court, with some of Brazil's wealthiest and most powerful people pitted against each other.

Banco BTG Pactual, controlled by Chairman Andre Esteves, has accused Jorge Paulo Lemann, Brazil's richest person, and his longtime business partners at buyout firm 3G Capital Inc. of involvement in "the biggest fraud in Brazil's capital markets," according to a legal filing.

In 2012, Esteves called Lemann a mentor in an interview, crediting him with bringing meritocracy to the country’s banking industry. This is a far cry from the current situation, where Esteves is under investigation for his involvement in a corruption scandal.

The news that Americanas had 20 billion reais ($3.9 billion) in accounting discrepancies last week sent shockwaves through the markets, resulting in a sell-off that wiped out almost 85% of the company's value in just three days. This disclosure more than doubled the company's liabilities, putting it in a precarious financial position. Creditors including BTG rushed to court, anticipating an imminent bankruptcy filing.

Lemann-backed retailer sinks 77% on CEO exit, $4 billion gap. This is a huge blow to the company, which is now facing an uncertain future.

BTG has accused Brazil's three richest men of corruption, saying they are "caught with their hands in the till" of one of their main companies. The men are worth a combined $35 billion, and BTG says they have been "anointed as some kind of demigods of 'good' global capitalism."

The three executives did not respond to requests for comment on the filing. BTG declined to provide any additional comment.

Americanas is still assessing the extent of the accounting flaws, but its disclosures to investors so far imply that it misreported numbers related to financing of debts with suppliers, and also wrongly deducted interest paid to lenders from its liabilities. This had two effects: artificially increasing profits and reducing reported liabilities.

Sergio Rial, the outgoing Chief Executive Officer of Banco Santander Brasil, told investors on Thursday that the problem goes back years. Rial, who was only in the job for two weeks, announced his departure after discovering "inconsistencies."

Americanas is one of the oldest and most iconic retailers in Brazil, founded in 1929. Its potential downfall could have a significant impact on Latin America’s largest economy. The company has a large presence with over 3,600 stores in more than 900 cities, over 5,000 suppliers and 40,000 employees.

The three 3G billionaires who own about 31% of the business could see their reputations suffer as well. The trio held control of Americanas for decades until a 2021 restructuring diluted their holdings. Sicupira and Lemann's son, Paulo Alberto, are on the board of Americanas, representing shareholders. The firm's chairman, Eduardo Saggioro Garcia, is a partner and CEO at LTS Investments, the family office for Lemann, Sicupira and Telles.

The Americanas meltdown has hit 3G billionaires hard, with a $4 billion hole appearing in their finances. This is a major setback for the group, which had been hoping to use the Americanas acquisition to fuel further growth.

On Friday, Americanas obtained protection against creditors from a court in Rio de Janeiro. The court's decision noted that adjustments to account for the misreporting may put the firm in breach of covenants that could lead to early debt maturity of almost 40 billion reais. Americanas also told the court that some creditors have moved to request assets, including over 1.2 billion reais by BTG.

The court's decision prevents creditors from freezing or seizing the company's assets, which prepares the firm for a bankruptcy filing. This is something that ratings firms believe is likely to happen unless the company can come to an agreement with its creditors.

The goal is to ensure adequate protection for the Americanas Group while working with creditors to find a viable alternative in light of the maturity schedule of its financial debts, João Guerra, the firm’s new CEO, said in a Jan. 13 statement.

The protection request came as a surprise to bankers, and BTG took action in response. The bank filed a motion to reverse the decision over the weekend, but the judge didn’t take action, arguing there was no need for urgency. BTG filed another motion on Monday, seeking arbitration at a court in São Paulo and arguing that it had called for the 1.2 billion reais owed prior to the Jan. 13 protection decision.

Bank of America and Banco Votorantim have both appealed the protection order, according to a report from O Globo newspaper on Monday.

The 3G trio has told the Americanas board that they plan to continue supporting the company, according to a regulatory filing. They offered a 6 billion-real capital injection to creditors in negotiations on Friday, but this amount was seen as too low by those familiar with the matter. Creditors are said to have asked for more than 10 billion reais, and negotiations are expected to resume this week.

On Monday, Americanas hired Rothschild & Co. as its adviser to help with its debt renegotiation.

BTG argued in its weekend filing that Americanas had tried to withdraw about 800 million reais in investments it had at the bank before announcing the "inconsistencies" to the market. The bank argued that Americanas shouldn't receive protection against creditors because fraud should be treated as a crime.

The article also mentioned the 2019 scandal at Kraft Heinz Co. in Chicago, saying that it was another case of "accounting fraud" at a company involving the 3G trio. Back then, the maker of Jell-O and Oscar Mayer hot dogs was forced to adjust its balance sheet by $15.4 billion, and was later charged by the Securities and Exchange Commission with "engaging in a long-running expense management scheme that resulted in the restatement of several years of financial reporting."

Kraft Heinz has agreed to pay $62 million to settle an SEC probe into its accounting practices. The company has also agreed to improve its internal controls and cooperate with the SEC's ongoing investigation.

The SEC has charged Kraft's former Chief Operating Officer Eduardo Pelleissone and its former Chief Procurement Officer Klaus Hofmann for their misconduct related to the case. The firm has agreed to pay a $62 million penalty to settle the probe.