Brazilian beer giant convicted in dispute over 116-year-old shares

. Jan 22, 2020
Beer giant ambev lawsuit dispute 116-year-old shares Brazil Photo: Ambev

Brazilian brewing giant Ambev is facing a bill of over BRL 300 million over an equity dispute that dates all the way back to World War II, involving Germany, former Brazilian President Getúlio Vargas, and popular beer brand Brahma.

In the 1990s, the near 200-year-old German shipping company F. Laeisz discovered that it holds some 74 million ordinary shares in Ambev, and a subsequent court case ruled in favor of F. Laeisz, forcing

the Brazilian corporation to pay all dividends and interest due to its shareholders since 2012, an amount believed to total more than BRL 300 million.</p> <p>In 1904, F. Laeisz was involved in shipping materials to Brazil for the production of Brahma beer, which first hit shelves six years earlier. Impressed by the nascent structure of the Rio de Janeiro brewer, the transportation company decided to invest in Brahma, along with other German firms, including coffee exporter Theodor Willie &amp; co., and the Brasilianische Bank für Deutschland, a financial institution later absorbed by Deutsche Bank.&nbsp;</p> <p>The influence of German investors in the early days of Brahma was such that the German-born Johann Künning served as president of the company in the 1900s.</p> <h2>Brazil in World War II</h2> <p>Though Germany&#8217;s colonial expansion throughout the 1880s and 1890s was much more focused on Africa and the Pacific, German businesses began to carve out a significant foothold in Brazil, along with their British, Italian, Japanese, and American counterparts. Earlier waves of migration from Europe meant that there were a number of characteristically German towns in the South of Brazil, and the coexistence between these immigrant populations was largely peaceful.</p> <p>This was until 1941, when Brazilian cargo ship Taubaté was attacked by the German Luftwaffe while transporting goods to Egypt. Brazil had originally preserved neutrality during World War II, but the attack caused Brazil to cut all ties with Germany and <a href="https://brazilian.report/guide-to-brazil/2017/10/15/brazil-world-war-ii/">declare war against the Axis</a>.</p> <p>Months before the official declaration of war on August 31, 1942, Brazil&#8217;s <a href="https://brazilian.report/guide-to-brazil/2017/10/15/getulio-vargas-era-brazil/">President Getulio Vargas</a> issued a decree which directly affected F. Laeisz and their compatriot businesses in Brazil.</p> <p>President Vargas&#8217; order determined the freezing of assets of all subjects of the Axis powers, meaning that German, Italian, and Japanese individuals and corporations would no longer have access to their property in Brazil.</p> <p>One of the highest-profile repercussions of this decree came in the world of football, as top São Paulo club Palestra Itália—traditionally belonging to the Italian immigrant community of the city—were forced to change their name, adopting &#8220;<a href="https://brazilian.report/sports/2020/01/20/brazil-football-state-championships/">Palmeiras</a>&#8221; instead.</p> <h2>Taking back what&#8217;s theirs </h2> <p>Over half a century passed before F. Laeisz did anything about its frozen shares in Brahma. As the beer consolidated itself as one of the best-selling labels in Brazil and was about to merge with fellow brewer Antârctica—thus forming Ambev—over in Germany, representatives of F. Laeisz discovered the 74 million ordinary shares they had held in Brahma, frozen by Getúlio Vargas. The German company went to court to claim back their stock, which the newly formed Ambev was not happy about, sparking a legal battle which rages on until today.</p> <p>On the one hand, Ambev casts doubt over F. Laeisz&#8217;s ownership of the shares, with the Brazilian federal government claiming them for itself, saying that the German company lost the right to redeem them over the passage of time.</p> <p>A federal judge in São Paulo ruled in favor of the Germans, saying that F. Laeisz is in fact the rightful owner of the shares, as the Vargas decree only froze the selling of assets, and at no point seized them for the state. With the decree being revoked in 1950, the judge understood that all assets would return to their original German, Italian, and Japanese owners.</p> <p>The court decision convicted Ambev to pay all the dividends on the equity interest due since 2012, which adds up to over BRL 300 million. The ruling will be appealed, and the case is likely to go all the way to the Supreme Court.</p> <h2>A drop in the ocean?</h2> <p>Ambev is, by some distance, the biggest brewer in Brazil. A potential BRL 300 million payout, if it comes to pass, is unlikely to make much of a dent in the company that records quarterly profits between BRL 2 and 3 billion.</p> <p>Owning Skol and Brahma, the <a href="https://brazilian.report/business/2018/11/23/brazil-most-valuable-brands/">number one and two Brazilian beer labels</a>, Ambev controls an estimated 60 to 70 percent of the domestic market and has a significant footprint in another 13 countries in the Americas.</p> <div class="flourish-embed" data-src="visualisation/1270071"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>For the consumer, Ambev&#8217;s products are near inescapable. With a strategy of courting businesses with exclusivity contracts, patrons of bars and restaurants looking to order a beer will often be presented with only Ambev&#8217;s labels, furthering their <a href="https://brazilian.report/society/2019/07/13/brazil-end-era-craft-beer/">dominance over the Brazilian beer market</a>.</p> <p>There is some concern on the horizon, however, with investment analysts Nord Research and investment bank BTG Pactual warning against putting money into Ambev shares.</p> <p>The justification is that the Brazilian beer market has changed. Dutch competitor Heineken has established a foothold, and consumers are increasingly on the lookout for variety and quality in their beer. In this regard, Ambev&#8217;s flagship labels Skol and Brahma have an image problem, with the former gaining the unfavorable nickname of &#8220;corn juice,&#8221; due to the inclusion of the demonized grain in its recipe.</p> <p>Ambev is not expected to lose value, however, thanks to its sheer size and strategy of diversification. In a bid to weather the anti-Skol storm, the company offers dozens of other popular labels, which have a much better reputation among consumers. Don&#8217;t fancy a Skol or Brahma? Ambev also owns the Brazilian production of Budweiser, Stella Artois, and Corona. Looking for <a href="https://brazilian.report/society/2018/11/30/brazilian-beer-companies-drinking/">something craft</a>? The mega brewer has also bought up artisanal brands Colorado, Wäls, and Goose Island. It is this spread that will see the beer giants through.

 
Euan Marshall

Euan Marshall. Originally from Scotland, Euan Marshall is a journalist who ditched his kilt and bagpipes for a caipirinha and a football in 2011, when he traded Glasgow for São Paulo. Specializing in Brazilian soccer, politics and the connection between the two, he authored a comprehensive history of Brazilian soccer entitled “A to Zico: An Alphabet of Brazilian Football.”

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