While Amaral was preparing his departure, the news that he was heading to Mesbla was published in the newspapers. Sicupira was furious and regarded his friend and fishing companion’s act as treason.
“Beto was really annoyed and out of control,” said Amaral. “He thought nothing like that should have happened.”
On leaving Americanas, Amaral had an equity stake of almost US$ 25 million in the retailer to go along with the invaluable lessons that he still uses today. All the employees at the Fazenda Novo Rumo farm he owns in Mato Grosso do Sul state are eligible for a bonus after a year in the company. But Amaral has not managed to restore his friendship with Sicupira and has never seen his goddaughter again.
“We always lose some things in life,” he said. “Fortunately, I have more gains than losses, but if there is one loss that I regret it is that one.”
Lambranho, his successor at Lojas Americanas, found the company in difficulties. It had become heavy, inefficient and needed investments to modernize and learn how to operate in a stable economy without inflation. A lot of his efforts were directed at the logistics sector where he created the retailer’s own distribution area and centralized stocks and technology. All this was done to avoid a recurring problem on the shelves: the lack of products. At the same time, Lambranho invested in a trainee program and ended up hiring 150 young people.
Training good people and preparing the company for a logistical and technological leap forward were necessary measures, but would only bring results in the long term. The problem was that Lojas Americanas had lost R$ 37 million that year and urgent adjustments were needed.
In 1998, just over 12 months after assuming the position, Lambranho left to work in GP Investimentos (but remained on the retailer’s board of directors). He explained his departure and choice of successor in the Lojas Americanas annual report for 1997.
“I believe the process from here on should be led by a new executive, with a history of successful change management and who has not been involved with the Company in the past,” Lambranho wrote. His recommendation was Cláudio Galeazzi, a consultant who had gained fame by carrying out dramatic shocks in the management of companies undergoing difficulties. These included the ceramic coatings manufacturer from Santa Catarina state, Cecrisa, and the textile company Artex.
Lojas Americanas would have an up and down performance in the following years, with periods of crisis and growth. Its performance never remotely approached that of Garantia’s other large investment – Brahma – although it brought a good financial return to its shareholders.
Fernandes set up a winning bank. He also “stole” a key executive from the Garantia’s controllers. To onlookers in the mid-1990s, he seemed unbeatable. However, things were rather different within Pactual.
The Pactual partnership began to fall out over how to move forward. The main point of disagreement was in relation to the proposed transformation of the institution into a retail bank. For 15 years, Pactual had built a reputation and fortune as an aggressive investment bank. Fernandes now wanted to convince his partners that there was also another way ahead in activities such as selling premium bonds, insurance and private pension plans. His intention was to buy BCN from the banker Pedro Conde. None of his partners was remotely interested in this idea. Diversifying activities too much was risky, and Fernandes himself should have already learned this lesson.
In 1993, Fernandes invested US$ 1.5 million of his own money into an activity of which he knew little to nothing when he bought Benetton’s operation in Brazil.
“In banking and in fashion, you are always selling an idea,” Fernandes said in 1994, in an attempt to identify some kind of similarity between the two sectors. After two years of losses, he sold the company back to the Italians. Another personal investment that did not work out was the purchase of the textile company Teba, which accumulated losses of R$ 43 million in 1996 and 1997.
In Pactual as well as in Garantia, discretion in one’s personal life was a value to be pursued. The fact that Fernandes had transformed himself into somebody who loved parties did not help the relationship with his partners. In 1993, he organized two events that remained in the memories of Rio’s high society. The first was a huge party to celebrate 10 years of Pactual. He wanted to show the 5,000 guests – particularly Lemann – how he had prospered after Garantia. Lemann, who even today recognizes the importance of Fernandes at the beginning of the bank, came out of his usual reclusion to take part in the event. The other huge party occurred on New Year’s Eve of that year when Fernandes opened the doors of the Fazenda Marambaia, a magnificent property outside Petrópolis, with gardens designed by Burle Marx, to almost 600 guests. Champagne flowed everywhere.
The first to leave as a result of the grandiose plans to transform Pactual into a retail bank were Paulo Guedes and André Jakurski, who left at the beginning of 1998. (Renato Bronfman had left around two years earlier.) Their departure opened room for a group of young partners – André Esteves, Gilberto Sayão, Marcelo Serfaty and Eduardo Plass – to increase their stakes. The problem for Fernandes was that these four proved to be even more hostile to his plans than his former partners. Moreover, they took advantage of his financial weakness, brought about by his failed private investments, and forced him to sell part of his shares in the bank.
Fernandes did what he could to fend off the four who offered him the money to pay off his debts. In exchange, they would control the bank, although he would still hold 51% of the shares. In August 1998, an article in Veja magazine reported that, after listening to his young partners’ proposal, Fernandes excused himself to go to the bathroom and disappeared, only coming back to the office three days later. He was trapped and alone. Apart from the financial troubles he was facing, he felt betrayed by a group of people to whom he had given all the opportunities to grow. It was a matter of time before he would lose all his power. His stake was progressively cut until he was forced to give the CEO job to Plass. Fernandes sold his last shares to the “boys,” as he called them, in the middle of 1999 before the arm-wrestling match with the four young partners. He took R$ 55 million for his 9% stake, but left morally defeated.
The young partners who dethroned him maintained the culture of meritocracy adopted from Garantia. Like Lemann’s bank, Pactual transformed itself into a springboard for young talented and ambitious people – from well-born backgrounds and not – to make a fortune. Two of them became billionaires when Pactual was sold to the Swiss bank UBS for US$ 2.6 billion in 2006: Sayão and Esteves. They became the main partners in the bank after Fernandes left, with each holding a 30% stake. The sale led to Esteves’ profile being projected at global level. Esteves, a mathematics graduate from Tijuca, came from a middle class district of Rio and was a former trader. He moved to London with his family to take charge of the UBS fixed income department.
Once Esteves was exposed to the world financial market, he began to plan his next step. The crisis of 2008 hit UBS hard, and the Brazilian saw an opportunity to buy global control of the Swiss bank. One of the sources of financing Esteves sought to carry out the deal was Lemann, who analyzed the offer and turned it down. The failed attempt to acquire the bank that had bought him put Esteves in a tight spot with the Swiss. In 2008, he had to return to Brazil. He then founded BTG, an abbreviation that officially meant Banking and Trading Group, but gained a more symbolic interpretation in the financial market: Back to the Game. A year after founding BTG, Esteves repurchased Pactual for a price that was much lower than he had sold it to the Swiss.
Esteves copied the culture based in meritocracy and partnership at BTG. He was a workaholic, argumentative, daring and had enviable contacts with the government. Esteves turned BTG Pactual into the largest investment bank in Brazil in less than four years, operating in such different markets as private equity, wealth management and retail. (This latter activity resulted from the acquisition of Panamericano, a bank that was bogged down in debt.) Many of those who followed his bank’s meteoric rise closely
thought Esteves was perhaps accelerating far too quickly.
Sayão’s style is totally different. He had no intention of leaving Rio where he had always lived, and continued to head Pactual Capital Partners (PCP), the private equity fund that managed the bank partners’ money. When the restriction period laid down in the sales agreement with the Swiss expired, Sayão set up Vinci Partners, an asset management firm that now has more than R$ 15 billion under management. A large part of this money is invested in companies in different sectors, from fashion to agribusiness. Sayão says he no longer has any plans to own a bank.
Why have
a business plan?
In 1989, Brazil was preparing to choose its new president after almost three decades without direct elections. Two candidates stood out as favorites. The first was Fernando Collor de Mello, a young politician who has made his fame denouncing privilege in Alagoas, where he was state governor. The other was Luiz Inácio Lula da Silva, a former labor unionist who was born in Pernambuco and represented the Partido dos Trabalhadores (Workers Party, known as the PT). Both were unknown to the electorate, but Lula sent a shiver through most Brazilian business leaders. They were afraid he would impose measures like freezing prices, add an extra tax on profits, increase bureaucracy and introduce agrarian reform that would hit agribusiness. The chairman of the São Paulo State Business Federation (Fiesp), Mario Amato, even claimed publicly that 800,000 business leaders would leave the country if the PT candidate won.
Lemann was not close to either candidate. Moving in political circles in Brasília was never his style, although he knew some important figures in the government. Until then, he had only met Collor privately once by chance, according to a report in the magazine Interview published in 1994. One rainy day in the center of Rio, Collor waved down the same taxi that Lemann had called. After discussing who would take the cab, they decided to share the ride as they were going in the same direction. Collor did not recognize the banker, but Lemann recognized the young politician from the Northeast, who was beginning to gain a name for himself throughout Brazil.
Collor and his female companion sat in the back and started speaking in English while Lemann stayed in front with the driver. Collor was complaining about the behavior of some businessmen and referred specifically to Lemann. The banker heard as much as he could stand until, without identifying himself, he told them that he spoke English. Collor continued with his criticism – this time in French. When he arrived at his destination, Lemann looked at Collor before leaving the car and told him his French was as bad as his English.
Garantia’s cash was overflowing on the eve of an election that could change the rules of the game, and Lemann was feeling deeply uncomfortable about the situation. He never liked to have a lot of money lying idle or distribute such fat dividends that his partners could become complacent. Buying control of another company, as had occurred with Lojas Americanas, seemed the ideal solution. Deciding which company would be the target of another acquisition was another of his favorite exercises. The pulp and paper producer Aracruz, for example, was one of the companies he tried to buy, but the negotiations did not work out in the end.
Another company had also caught his eye for some time, the brewer Brahma. Although it had a strong brand, the firm had been losing ground due to a series of internal problems. Lemann was not the only person to have noted the decline.
“There were people in our group who had seen what was happening at Brahma and said it was a fantastic company but needed a new business leadership,” Jorge Gerdau said. “As we were completely focused on steel, it was not for us, but it was obvious that Brahma needed a change.”
Just over two weeks before the first round of presidential elections, Lemann received a phone call from Hubert Gregg, chairman of the brewer and a member of one of the German families that controlled the brewer. (The other was the Künning family.) Lemann had won his confidence some time earlier. Everything had started eight years earlier, when an investor named Mario Slerca began buying up shares on the market. As shares at that time were still marked to the bearer, Brahma’s controllers took some time to identify the mystery buyer. When they saw that Slerca was close to making a takeover, the Germans sought help from the founder of Bradesco bank, Amador Aguiar, with whom they had a good relationship. Aguiar promised to find a solution and decided to use his influence with the Sul América insurance company, which he convinced to buy Slerca’s stake. Aguiar had maintained a partnership with the Rio-based Sul América in a private pension project for three years.
Everything seemed to be resolved until Sul América started to increase its stake in Brahma by too much. Aguiar’s tactic to protect Brahma ended up being used against the company. Gregg felt betrayed and appealed to Aguiar who did not like Sul América’s maneuver and ordered it to sell off its stake immediately.
Lemann watched from the sidelines right from the beginning as this tricky situation developed and was contracted by the German families. He stitched up a deal with Bradesco, put pressure on Sul América to sell its Brahma shares and, finally, became part of the bloc that financed the brewer’s owners to buy back the shares from the insurer. With the control guaranteed once again, Gregg was then able to sell some of the shares in a more widespread way to avoid the risk of any new attack – and Garantia’s job was to place them on the market. This deal brought Lemann closer to Bradesco, a bank for which he had an enormous admiration. (Lemann still highlights the force of the culture Aguiar created at Bradesco and its sustainability.) He also won the trust of the Brahma chairman.
“I won points there... I then began to tell them that if they wanted to sell the company one day I would like to buy it,” Lemann once said.
Brahma was undergoing an experience that was typical of that of many family-owned concerns at the end of the 1980s. After decades of growth, it started to slow down and became bogged down in issues related to the controllers rather than the business itself. A number of members of the families worked for the brewer, many in executive positions, and the arrival of new generations only made things more complicated. Although Brahma had a market share of almost 30%, its earnings were worse than those of its São Paulo rival, Antarctica. The Brahma owners believed the company was in a state of decline, with no future prospects, and decided to sell it. Almost four months of negotiations went by – Lemann was the only Garantia representative who spoke to the Brahma shareholders – before he received the call from Gregg at the end of October 1989. Lemann was ready for the call. Over the previous two months, Garantia had been buying all the Brahma shares it could on the market. All he now needed to do was buy control (a similar approach to that which he and his partners used in buying Lojas Americanas).
After hanging up, Lemann ran to the brewer’s head office in Rio. When he came back to the bank several hours later, he announced: “Listen everybody, I’ve bought Brahma.” The cost to the bank was US$ 60 million. “Just as well I never went to business school, otherwise, I would never have closed a deal like that in a single afternoon,” he would say later.
The Garantia partners’ reaction to the announcement was not unanimous. Telles, for example, was thrilled and celebrated. Others did their sums and thought the deal was crazy. One who was most on the defensive was the economist Claudio Haddad.
“You’re mad. How are we going to pay?” His greatest concern was that Lula could be elected, which would cause economic instability.
It was a sensitive, pragmatic question, with an undisputed theoretical endorsement and exactly why Lemann pursued Haddad in 1979 and invited him to become the bank’s chief economist. Haddad had a Ph.D. from Chicago University and was the first academic among the PSDs Lemann usually hired. He was the intellectual among the tough guys. Lemann felt the need for some theoretical back-up after a shock caused by the then finance minister Mário Henrique Simonsen. In an attempt to control inflation, Simonsen cut four percentage points from the monetary restatement measurement used to offset inflation – an enormous blow to Gar
antia that had big positions in readjustable Treasury bonds known as ORTNs. As a result, the bank lost US$ 20 million from one day to the next – a considerable part of its assets.
For Lemann, professionals with Haddad’s education could foresee future macroeconomic movements that could put the bank at risk once again. Haddad calculated everything and weighed the pros and cons before taking any decision. He was so cautious that for years, he wondered if he would ever be able to pay off share options he had received from Garantia. Not only did Haddad settle his debt, but became CEO in 1993.
Cautious arguments like Haddad’s were not what Lemann wanted to hear when he announced the purchase of Brahma. He was sure the acquisition was an important deal and one of those rare opportunities that appear in front of an entrepreneur. He felt it would have an enormous impact on the group. His absolute confidence had nothing to do with any sixth sense or anything like that. Lemann sees himself as a man without any kind of intuition. He relies mainly on good sense, a view of the future and simple thinking in taking decisions. The argument he used to convince Haddad that the acquisition made great sense was as follows:
“Tropical country, hot climate, good brand, young population and poor management... OK, that gives us everything we need to transform it into something great,” he said. Lemann ended his argument by saying that he had carried out an informal “market survey,” which revealed encouraging information. “I was looking at Latin America and who was the richest guy in Venezuela? A brewer (the Mendoza family that owns Polar). The richest guy in Colombia? A brewer (the Santo Domingo group, the owner of Bavaria). The richest in Argentina? A brewer (the Bembergs, owners of Quilmes). These guys can’t all be geniuses...It’s the business that must be good.”
DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz Page 10
