The Brazilian billionaires embroiled in a $3.9bn scandal

In today’s newsletter:

• A $3.9bn accounting scandal in Brazil

• Illumina’s lobbying push

• Inside IHC’s stunning rise

The mystery of Americanas’ missing billions

A $3.9bn financial hole, a chief executive gone after less than two weeks on the job, a trio of billionaires under fire from banks, and a Big Four auditor that appears to have missed the signs …

Americanas, the century-old Brazilian retailer, had been keen to modernise its operations and keep pace with more tech-savvy rivals. But the sweeping accounting scandal enveloping the group, which has plunged the company into bankruptcy and shaken corporate Brazil, isn’t quite the exposure it had been hoping for.

The FT’s Bryan Harris broke down the debacle earlier this week: it all began in January when Americanas’ brand new chief Sérgio Rial — the former CEO and chair of Santander Brasil — abruptly quit alongside chief financial officer Andre Covre after the company reported accounting “inconsistencies” of more than R$20bn ($3.9bn).

As its share price plunged, a bitter fight broke out between Americanas — long controlled by private equity firm 3G Capital’s billionaire founders Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira — and its creditors, which include Banco Bradesco and investment bank BTG Pactual.

BTG, which had been forbidden by a Rio court from seizing assets, was quick to launch grenades at Americanas’ powerful shareholders.

“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,” said BTG lawyers in a filing to the court.

Following a two-week standstill, and days after Americanas filed for bankruptcy protection, the three men came out with a statement that they hadn’t been aware of accounting issues at the company and would never support such “manoeuvres”.

One of their main lines of defence: The retailer had employed one of the “most respected independent auditing firms in the world, PwC”, which signed off on Americanas’ last full set of accounts in 2021.

The Brazilian Association of Investors, aka Abradin, has called for regulators to investigate Americanas and PwC, calling the scandal a “multibillion fraud”. PwC declined to comment on any aspect of the case including the fraud allegations.

But probes by Brazil’s Securities Commission, known as the CVM, could take months if not years, as the agency grapples with steep budget cuts.

The scandal has amplified scrutiny on Americanas’ three billionaire backers. The trio rose to fame in the late 1980s after acquiring Brazilian brewer Brahma, which they then parlayed into the world’s largest beer company, Anheuser-Busch InBev, after three decades of aggressive dealmaking.

Lemann, Telles and Sicupira remain controlling shareholders of AB InBev. (Fun fact: as a young executive at Shell in Brazil, AB InBev’s former boss Carlos Brito convinced Lemann to fund his MBA at Stanford.) Through 3G, they also hold stakes in Kraft Heinz and the holding company that controls Burger King.

Until the scandal at Americanas, the three financiers seemed to be gradually bowing out of the spotlight. Lemann, a former Brazilian tennis champion, stepped down from Kraft Heinz’s board in 2021 at the age of 81.

Now, Americanas’ creditors are threatening to go after the 3G founders’ personal wealth if they don’t come up with the cash to rescue the company, Bloomberg reported last week.

Analysts say their kingmaker reputations in Brazil could be at risk.

Said Geraldo Affonso Ferreira, chair of asset manager ESH Capital’s advisory board: “It raises questions about the three billionaires. Could they be doing such a thing at Kraft Heinz [in which 3G Capital owns a stake] and others?”

Illumina gets into politics

What do you do when your $8bn transformational merger is opposed by regulators on both sides of the Atlantic?

One tactic deployed by genome sequencing company Illumina is to hire an army of lobbyists to argue why the Federal Trade Commission and European Commission got it wrong in their assessment that its takeover of Grail is anti-competitive.

It all started in 2020, when Illumina agreed to buy Grail, a company it founded in 2017 but later spun out to raise money to fund the development of its first multi-cancer early detection tests. The FTC and Brussels opposed the deal on the basis that Illumina — the main supplier of gene sequencing technology to Grail rivals — could favour its new unit over competitors.

This opposition surprised Illumina and many in the industry. After all, Grail didn’t have any operations in Europe, and both regulators broke legal ground by blocking a so-called vertical merger. So began a two-and-half-year legal and lobbying battle over the future of a transaction that could set an important precedent in antitrust law.

Public disclosures reviewed by the FT show Illumina aggressively boosted spending on federal lobbying in the US to almost $15mn in the last two years — more than five times what it and Grail spent in 2019 and 2020. Last year it was the fourth largest spender on lobbying among pharma companies, behind only industry heavyweights Pfizer, Amgen and Roche.

Several big firms are benefiting from Illumina’s largesse. The company paid law firm Sidley Austin $2.8mn since 2021 for lobbying members of both houses of Congress over its efforts to acquire Grail among other issues. DLA Piper has received about $4.9mn in fees since April 2021.

Whether Illumina’s lobbying efforts have paid off is debatable.

Neither Brussels nor the FTC have backed down and the EU appears poised to issue a fine of up to $450mn for “gun jumping” — closing the merger despite its opposition. Brussels is also seeking to unwind the deal.

With Illumina shares down more than 20 per cent since the deal was announced, investors are getting nervous. And regulators don’t appear to be listening.

Abu Dhabi’s stock market star draws scrutiny

You may have noticed a recurring character in DD lately.

Last week we looked at the possible revival of First Abu Dhabi Bank’s bid for Standard Chartered, followed by the latest on the Adani affair and the Abu Dhabi-based conglomerate International Holding Company that stuck by its side when it became the target of a short seller report.

The common thread: none other than Sheikh Tahnoon bin Zayed al-Nahyan, the Abu Dhabi royal investor-slash-security chief who has been a key architect in the United Arab Emirates’ extraordinary financial transformation.

Our FT colleagues have published a detailed look into IHC, once a little-known purveyor of fisheries, food and real estate that has morphed into a $240bn giant over the past three years — transforming Abu Dhabi’s stock market in the process.

Tahnoon, who chairs IHC along with potential StanChart suitor FAB among other influential UAE businesses, has helped revolutionise the capital’s modest private sector: IHC, when combined with its subsidiaries, now occupies nearly half of the Abu Dhabi exchange.

Its stunning rise has mystified many bankers and analysts, and fuelled concerns about market transparency given the company’s close ties to Abu Dhabi’s ruling family.

It’s no secret that Tahnoon, the brother of the UAE’s ruler Sheikh Mohammed bin Zayed al-Nahyan (MBZ), sits at the nexus of business and power in the UAE.

But that blurring of state and royal interests could become a concern for foreign investors. Tahnoon could soon be helping to manoeuvre a potential cross-border banking mega-deal as FAB chair among other transactions on the global stage.

Job moves

• Coatue Management has hired Ben Schwerin, a senior vice-president of content and partnerships at Snap, as a general partner.

• US law firm Wilson Sonsini has hired Olshan partner Sebastian Alsheimer, who has worked for activists including Elliott Management and Starboard Value, as a partner and co-head of shareholder activism, per Reuters.

• Jefferies banker Jeffrey Altman has joined JLL’s M&A team as a senior managing director, based in New York.

• Sidley Austin has hired Kirkland & Ellis’ Nicholas Cassin as partner in its investment funds practice, based in New York.

Smart reads

More red flags at Wirecard The law firm tasked with running an internal fraud investigation at the fallen German payments group in 2019 accused then-chief executive Markus Braun of making misleading statements to investors, an FT analysis reveals. The incidents raise further questions about Braun’s credibility as he prepares to take the stand.

Back to basics The widening valuation gap between Goldman Sachs and Morgan Stanley is showing no signs of letting up. Perhaps Goldman should drop the diversification push and stick to what it does best, our colleagues at Unhedged write.

Cashmere with a conscience Italian billionaire Brunello Cucinelli is pouring profits into better pay and working conditions. The strategy is working with investors and younger luxury buyers, Bloomberg reports.

News round-up

Gautam Adani’s ports business to repay $600mn in race to cut debt (FT + Alphaville)

Apollo assessing possible CS First Boston investment (Reuters)

Carlyle fundraising slowed sharply during chief executive hunt (FT + Lex)

SoftBank’s Vision Funds post $5.5bn loss as Masayoshi Son steps back from spotlight (FT + Alphaville)

Singapore’s GIC cuts exposure to H2O Asset Management (FT)

BNP Paribas raises profit targets after Bank of the West windfall (FT + Lex)

Premier League ‘shows its teeth’ with move against Manchester City (FT)