Clarification on News: “Petrobras may have to give preference to minority in BR.”

Rio de Janeiro, August 8, 2016 – Petróleo Brasileiro S.A. – Petrobras hereby answers to the Official Letter No. 202/2016CVM/SEP/GEA3, which requests the following clarifications:

Ref.: Official Letter No.202/2016CVM/SEP/GEA3

“Mr. Director,

1. We refer to the news published today in the newspaper Valor Econômico, Business section, under the title: “Petrobras may have to give preference to minority shareholder in BR”, which contained the following statements:

Petrobras will face an important regulatory issue to carry forward the sales model that the company intends to adopt for BR Distribuidora. The Brazilian Corporations Law establishes that, in order to sell a wholly-owned subsidiary, or part of it, the business opportunity must be offered first to the minority shareholders of the parent company.

The current model for the sale of BR Distribuidora provides that the subsidiary will have the capital divided into common and preferred shares. In the structure, the sale will result in shared control, so a private partner will have at least half of the voting capital. Petrobras, however, will have the greater economic participation, seeing that it will have most of the preferred shares.

In practice, this model allows, with 25% of the total capital, a new partner to have influence over the business. The distribution of powers and rights in BR will only become clear with a detailed model of governance and management.

The subject of the Brazilian Corporations Law connected to the case should soon be evaluated by the collegiate of the Brazilian Securities and Exchange Commission (CVM), the highest level of regulatory decision, which will specifically discuss on the implementation of the model to BR, according to Valor.

Petrobras has already consulted the local authority. In practice, the Company sought an exemption to this legal recommendation, contained in Article 253 of the Corporations Law (see full text below).

The technical area of CVM denied the request of the state-owned company. A decision taken by the Corporate Relations Head Office (SEP). Petrobras appealed against the understanding of the head office and, therefore, the issue will now be evaluated by the collegiate, composed of four directors of the house plus the chairman.

According to Valor, the discussion by the collegiate is imminent. Sources who closely monitoring the case have confirmed the information. Petrobras and CVM said they have no comments on the matter.

The concern of Petrobras, verified by Valor, is that, if the understanding of the technical area prevails, the sale of BR will be hampered. The assessment is that the law does not prevent the intended business. However, it would create uncertainty and it may even lead to a reduction in the price that the buyer would be willing to pay. Thus, indirectly, the minority shareholder would no longer get the benefit from the transaction.

The expectation of the state-owned company, according to a source monitoring the case, is that the collegiate of CVM will have a “broader vision on the issue than the technical area.”

In the decisions history of the CVM’s collegiate, there is no case exactly like the one of Petrobras and the fuel distributor. However, there are many precedents on the basis of Article 253.

In 2010, the sugar and alcohol company São Martinho decided to have Petrobras itself as a partner in two of its plants. The transaction was made through an injection of funds by the state-owned company in a wholly-owned subsidiary. After a decision of the technical area of CVM, São Martinho offered the deal, on equal terms given to Petrobras, to its minority shareholders.

In 2011, Otávio Yazbek, former chairman of CVM, talked about the explanation for the existence of Article 253, during a voting in the collegiate. According to him, in groups with multiple partners, “tends to occur a shift of some decision-making powers, shirking the involved companies’ minorities shareholders from the process. In this manner, for example, the managers of the parent Company are the ones who vote at meetings of the wholly-owned subsidiary, so the minority shareholders are not able to take part in important discussions and that may affect them directly. This kind of effect is not only political, but also patrimonial, allowing the emptying of the parent company’s activities or the dilution of the minority shareholders without the typical defense mechanisms being applied”.

Marcelo Trindade, former chairman of the regulator, when defending the transactions of stock incorporations under complete incorporations, in 2005, wrote that Article 253 is an “additional right”, as it provides the preference, “if and when they are fully or partially sold, in order to subscribe the capital increase of the company, if it admits new shareholders, no longer being a wholly-owned subsidiary”.

When Unibanco wanted to sell its shares in treasury, in 2005, a discussion with CVM on the preference made the director Luiz Antônio de Sampaio Campos to point out that “the only event which provides such preemptive right is in the assumption of admission of shareholders in the wholly-owned subsidiary”. Such right is “erratically specific”.


In answer to the Official Letter No. 202/2016CVM/SEP/GEA3, Petrobras clarifies that, in May 25, 2016, the Company made a consultation to CVM seeking to confirm their understanding on the inapplicability of Article 253 of the Brazilian Corporations Law, which deals with the preemptive right to shareholders of the parent company in the event of disposal of shares of a wholly-owned subsidiary, regarding the sale of part of the shares of BR Distribuidora.

The technical area of CVM has not confirmed the understanding of the Company, which is why Petrobras appealed to the Collegiate of the Local Authority and is awaiting the trial of the matter.

Petrobras informs that it is not yet possible to assess any impact of the decision on the proposed operation.

Facts deemed relevant on this subject will be timely communicated to the market.

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