Reorganization proposed for Embraer

 - September 25, 2006, 10:26 AM

A proposed wholesale change to Embraer’s capital structure will see CEO Mauricio Botelho leave his chief executive’s post in April next year and become chairman of the new company until April 2009, the end of his three-year term. Embraer’s CEO since September 1995, 10 months after the company became a private enterprise, Botelho called the decision to step down a personal one.

“Nothing lasts forever,” he said at a recent press conference, adding that he believes change is one of the “most healthy facts of life.” Botelho is considered the architect of Embraer’s turnaround. Under his leadership, the company went from being an inefficient state-controlled dinosaur to a model of free enterprise in Brazil and a star of the New York Stock Exchange.

“In the past ten years, Embraer has grown ten-fold,” Botelho said.

According to analysts, Botelho’s replacement will probably come from within the ranks of the company. “There are talented people with the skills to take over the position,” Botelho said. Generally accepted as the company’s second in charge, executive v-p Frederico Curado has surfaced as one of the most likely candidates.

Still subject to shareholder approval, the restructuring plan would replace all preferred shares with common stock traded on the Novo Mercado division of the São Paulo Stock Exchange, a special trading segment for companies that meet the highest standards of Brazilian corporate governance. Embraer said shareholders will benefit from a potential increase in liquidity of the shares, resulting in a larger market capitalization of the company, and from the adoption of enhanced corporate governance practices and transparency standards, because all shareholders will gain the right to vote.

The End of ‘Embraer’

Under the plan, the existing Embraer will merge with Rio Han, a São Paulo-based enterprise organized specifically to act as a vehicle for the restructuring. As a result of the merger, Embraer will cease to exist, and consequently all its shares will become outstanding.

All shareholders will then receive common shares issued by Rio Han, and the Brazilian federal government will receive a new “golden share,” which guarantees it special rights “to preserve Brazil’s strategic interests” in the company.

As holder of the golden share, the government will maintain the right to appoint one board member and one alternate of the successor company, named New Embraer. Employees will gain the right to appoint two members and their respective alternates, while the rest of the shareholders elect the remaining eight members and their alternates.

To ensure “the stability of corporate actions and the continuity of management guidelines,” shareholders of Rio Han will elect the board of directors during the three-year transition period, ending at the annual general shareholders meeting to approve financial statements for Fiscal Year 2008. Rio Han has indicated that its shareholders plan to elect Botelho as chairman and CEO of the new company. Following the transition period, board members will serve two-year terms, in accordance with the rules of the Novo Mercado.