Brazil’s $4 billion accounting scandal puts spotlight on investor Jorge Paulo Lemann
The Brazilian retailer Americanas has manipulated its balance sheet. This came to light on January 11, 2023 when the new CEO suddenly resigned after only nine days in office. The case casts a shadow over Mr Lemann’s investment – he built his stake 40 years ago through what is known today AB InBev – and his oversight.
Mr Lemann, 82, as well as Marcel Telles, 72, and Carlos Sicupira, 74, who founded the private equity firm 3G Capital, are among Americanas’ principal “reference” shareholders. Together they own roughly 30% of Americanas’ stock. 3G Capital itself has no stake in Americanas. The three are also major shareholders of beer giant AB InBev.
Recently Brazilian retail company Americanas declared bankruptcy. The bankruptcy filing has resulted in a loss of about $4 billion for the company, which is majority-owned by the 3G Capital investment firm, which is run by 3G billionaires, Lemann, Telles, and Sicupira.
Americanas, the Brazilian retailer at the heart of an accounting scandal that has pitted some of the nation’s biggest corporate names against each other, has filed for bankruptcy protection hours after revealing its cash reserves had evaporated, according to Financial Times reporting.
Americanas is omnipresent in Brazilian high streets and malls. The company runs 1,700 stores, selling everything from electronics to snacks and homeware.
Americanas’ three largest shareholders, the billionaire founders of 3G Capital, said recently they had not known of $4 billion in accounting ‘inconsistencies’ at the Brazilian retailer, as per Reuters reporting. In their first official statement since Americanas filed for bankruptcy this month, Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Telles said they were “sorry for investor and creditor losses”.
Backed by several Brazilian billionaires, including the country’s richest man Jorge Paulo Lemann, Americanas has been engulfed in crisis since it revealed accounting “inconsistencies” of more than $3.8bn. Since then the company’s shares have plunged more than 85%. Since the bankruptcy filing, Americanas has been embroiled in a bitter judicial fight with creditors, including Banco Bradesco and investment bank BTG Pactual.
The Financial Times reports that after a court order on January 13 forbade the banks from freezing or seizing Americanas’ assets, BTG took an unusual personal shot at the company’s billionaire backers. The three own around 31% of the business.
The three richest men in Brazil (with assets valued at R$180bn), anointed as kind of demigods of ‘good’ world capitalism, are caught with their hands in the cash register of what, since 1982, has been one of the main companies of the trio,” said BTG lawyers in a filing to the court, as per the Financial Times.
Although the successful trajectories are written in bestsellers, Lemann, Telles and Sicupira built their empires on foundations that are not as solid as they seem.”BTG lawyers in a court filing
3G Capital and Big Alcohol
Lemann, Telles and Sicupira are the founders of private investment group 3G Capital, which owns stakes in Chicago-based Kraft Heinz as well as the holding company that controls Burger King. 3G Capital has no involvement in the dispute as it does not own any stake in Americanas. The three billionaires rose to fame in the late 1980s after acquiring Brahma, a Brazilian brewer, which they later used as a platform to assemble what is today the world’s biggest beer producer — Anheuser-Busch InBev — through a series of acquisitions over more than three decades.
BTG succeeded in partially overturning the January court order, obtaining a new decision that allowed it to withhold R$1.2bn from the company to compensate for part of its debts. But the next day, Americanas announced it had just R$800mn available in cash, shortly before filing for bankruptcy protection. The retailer declared debts of R$43bn to the court.
Americanas is a ubiquitous brand in Brazilian high streets and malls. The company employs more than 40,000 people and runs more than 3,500 stores, selling everything from electronics to snacks and homeware.
The R$20bn accounting “irregularity” stemmed from an operation common among Brazilian retailers. Banks would pay Americanas suppliers in advance, with the company then responsible for the repayment of these loans, including interest payments. These interest transactions, however, were effectively camouflaged by the company, which did not classify them as financial debts. The practice, which resulted in higher reported profits, is believed to have gone on for years, according to the Financial Times.
Securities industry regulator CVM has also launched probes into Americanas, which has seen its stock lose more than 90% of its value since the news of the accounting problems emerged, as per Reuters.
Billionaire Andre Esteves’s BTG Pactual called it “the biggest fraud in Brazil’s capital markets.”
The startling and rapid meltdown has left Brazilians with the prospect of losing a ubiquitous company known for its unmistakable red-and-white logo and holiday sales, including in Rio de Janeiro where it was founded in 1929. The collapse dragged down the country’s stock market, sent creditors rushing to organize and pitted some of the nation’s most famed investors against each other.
Bloomberg writes that the collapse threatens to tarnish the reputation of Lemann and his partners as well as lead to losses in the shares they hold in Americanas. The trio controlled the company until they were diluted in a 2021 reorganization, which left them with a stake of 31%, still the main shareholders. They told the board they plan to keep supporting the company, but investors fear that any negative outcome may hurt other firms in which they are involved, such as Kraft Heinz Co. and Anheuser-Busch InBev.
Questions are being raised in Brazil about how Lemann, Sicupira, and Tellas could miss such a massive liability in a company they’ve run for so many decades.
Bloomberg Linea reports that the Big Alcohol owners have collectively lost more than $16 billion – 29% of their wealth – in the last five years. Much of these losses are due to problems at AB InBev, whose shares have lost massive value in recent years (40% decline).
Leman, Telles and Sicupira have been implicated in unethical conduct before
It is noteworthy that the three Big Alcohol owners have been able to protect and manage their image so well in Brazil. The latest scandal is now tarnishing their reputation. But their unethical business conduct has received scrutiny before.
For example, in 2017 the Paradise Papers revealed that alcohol industry executives think they are above the law. The leaks exposed that the alcohol industry is ruthlessly externalizing costs to take home windfall profits, and deliberately scheming to avoid taxation, as Maik Dünnbier wrote in an opinion column.
Paradise Papers expose Big Alcohol giant AB InBev and Jorge Leman
With a fortune of $31.2 billion and as the 26th richest person in the world, Jorge Paulo Lemann is drawing attention for being implicated in the Paradise Papers. He is the co-founder of 3G Capital, an American-Brazilian multibillion-dollar investment firm, and shares control of AB InBev with his billionaire partners Marcel Telles and Carlos Sicupira.
Leman is one of the key people responsible for the formation of the world’s largest brewer.
In the early 2000s, he bought control of two Brazilian breweries (Brahma beer and Companhia Antarctica Paulista) that became AmBev. By 2004, AmBev controlled 65% of the Brazilian beer market and almost 80% of Argentina’s, with monopoly positions in Paraguay, Uruguay, and Bolivia. Subsequently, AmBev merged with Interbrew of Belgium in August 2004. The stock of the combined firm, InBev, rose 40% during 2005. InBev then announced it would buy the American brewer Anheuser-Busch in 2008 for $46 billion in a highly controversial deal, making it the world’s largest brewer, Anheuser-Busch Inbev securing Lemann’s status as one of the new “Kings” of beer.
And finally, fulfilling Lemann’s fever-dream, in 2016 the ultimate beerhemoth arrived with the historic mega-merger of AB InBev and SABMiller. Since the merger the new beerhemoth is responsible for one in three beers sold worldwide.
Contained in the Paradise Papers are documents listing Lemann and other AB InBev executives — Carlos Alberto da Veiga Sicupira and Marcel Herrmann Telles — as directors of several of the companies in question. All three are serving on the Board of Directors.
European Commission investigated AB InBev for tax scheme
In 2019, AB InBev was among 39 corporations targeted by European Union investigations into Belgian tax schemes after an earlier order to recoup about €800 million was criticized by the EU’s General Court.
According to an emailed statement, the European Commission opened separate probes into so-called tax rulings that Belgium doled out to multinational companies from 2005 to 2014. The rulings “may have given a selective advantage” to the companies “allowing them to pay substantially less tax…” This was not the first time AB InBev was caught up in unethical business practices. The beer giant has a history of trade violations in the EU, tax avoidance and bribery in India and copyright violations – to list a few of the beerhemoth’s unethical business practices.
Financial Times: “Brazil’s Americanas files for bankruptcy after $3.8bn accounting scandal“
Bloomberg Linea: “Brazil’s Beleaguered Americanas Files For Bankruptcy Protection“