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Vale Says Shareholders Seeking Replacement for CEO Agnelli

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Vale SA Chief Executive Officer Roger Agnelli
Vale SA Chief Executive Officer Roger Agnelli. Photographer: Michael Nagle/Bloomberg

April 1 (Bloomberg) -- Vale SA, the world´s largest iron-ore producer, said its controlling shareholders are seeking to replace Chief Executive Officer Roger Agnelli after he was criticized for not spending enough on some Brazilian projects.

The Valepar SA shareholder group hired an international recruitment consultant to help draw up a list of three possible candidates to succeed Agnelli, 51, once his term expires in May, Rio de Janeiro-based Vale said in a statement late yesterday.

Agnelli´s ouster follows months of speculation about his position under President Dilma Rousseff, after the Brazilian government criticized Vale for not investing more in the country. Brazil, which holds direct and indirect stakes in the company, argued that Agnelli should spend more in the steel, shipbuilding and fertilizer industries to create jobs instead of focusing on supplying iron-ore and other raw materials to China.

“It appears this saga has taken one step closer to an end,” Jonathan Brandt, an equity analyst at HSBC Holdings Plc in New York, said today in a note to investors. “While the noise surrounding a potential CEO change will abate, the political risk surrounding Vale has increased and will most likely remain at a heightened level for some time,” he wrote.

Brazil pension funds Funcef, Previ, Petros and Funcesp hold 49 percent of Valepar SA. Other shareholders of Valepar include Bradespar SA, the holding company of Banco Bradesco SA, Mitsui & Co. and BNDESPAR, a subsidiary of the Brazilian state-owned development bank BNDES, which also has a direct stake.

Golden Shares

Apart from its presence through BNDES and the pension funds of state-owned banks, the Brazilian government also owns 12 so-called golden shares in Vale that give it veto powers over certain decisions such as changing the location of the company´s headquarters or its corporate purposes.

Vale fell 23 centavos, or 0.5 percent, to 47.16 reais in Sao Paulo trading at 10:27 a.m. New York time. The stock declined about 2 percent this year, compared with a 0.3 percent loss for the Bovespa benchmark index.

Vale fired 1,300 employees, said that 5,500 more would be put on paid leave and pared its investments by about half to $9 billion, from an announced $14.2 billion, during the global recession two years ago. The decision was criticized by then-Brazilian President Luiz Inacio Lula da Silva, who said the company had “no reason” to cut spending because it had “lots of cash” to help the domestic economy resume growth.

Faced Criticism

Agnelli also faced criticism from the Brazilian government for buying ships in China when Brazil was setting up its own shipyards. The former president urged Vale to spend more on fertilizers and between April and September of 2009 he asked the company to build steelworks at least half a dozen times.

“I’m not irritated with Vale,” Lula said in an interview with Brazilian financial daily Valor Economico at the time. “I’ve insisted, systematically, that Vale builds steelworks in Brazil. Vale can no longer afford the luxury of just being an iron-ore exporter.”

President Rousseff also complained about Vale’s focus on selling raw materials abroad as Lula’s cabinet chief, saying that the company should be subject to government “controls.”

“I cannot agree with the fact that Vale exports iron ore to China at the same time that we import crude steel and products,” Rousseff told Epoca magazine last year. “That’s not a relationship that interest us as a nation,” she said.

Belo Monte Project

More recently, Brazil’s Energy and Mining Minister Edison Lobao said that Vale was one of the companies interested in becoming a partner of the Belo Monte dam project, according to local newspapers. The company said March 25 that it was still assessing the project and that it hasn’t yet made a decision.

Vale reacted to the government’s demands by increasing some investments in the steel and fertilizers businesses. The company opened a steel joint venture in Rio de Janeiro state with ThyssenKrupp AG in June and will start developing two new steel projects later this year. The company also spent $5.8 billion during 2010 buying fertilizer assets as part of a plan to almost triple potash and phosphate rock output by 2015.

Still, investment in steelmaking will account for less than 3 percent of Vale’s capital expenditures this year, with fertilizers taking 10.4 percent. Vale’s strategy will continue to be focused on minority stakes in steel joint ventures with the goal of becoming exclusive supplier of iron ore and pellets to such projects, it said Oct. 28.

Record Investment

Vale plans to invest a record $24 billion this year, about 64 percent of it in Brazil, as it seeks to boost iron-ore production to 522 million metric tons by 2015. The company budgeted 73 percent of its $11 billion investment during 2008 to Brazil, according to regulatory filings.

“Whoever is CEO can in our view expect to face increased political pressures,” UBS AG analysts led by Rene Kleyweg said March 28 in a note to clients.

Agnelli, who succeeded Jorio Dauster in July 2001, oversaw more than $84 billion in investments and acquisitions during his decade-long tenure as head of Brazil’s biggest exporter. The company posted 2010 profit of $17.3 billion, which Vale said was the most ever for a mining company.

An economist trained at Fundacao Armando Alvares Penteado of Sao Paulo, Agnelli started his career at Banco Bradesco SA, Brazil’s second-biggest bank by market value, in 1981, becoming an executive director in 1998 and chairman of Vale’s board of directors in 2000. Since his arrival, Vale spent about $33.3 billion to acquire companies, including Canadian nickel miner Inco Ltd. in January 2007 for C$19.4 billion ($20 billion). Vale sold units and made divestitures amounting $3.95 billion during the same period, according to the company’s website.

Vale Privatized

“For the government, the issue is that Vale was privatized and has been doing pretty well, has been growing a lot, but now they want Vale to give more back to Brazil,” Erasto Almeida, an analyst with the Eurasia Group in New York, said in a telephone interview on March 24. “It’s more like, ‘we want Vale to do more in terms of helping to generate jobs in Brazil, helping with the government’s industrial policies’.”

Vale’s controlling shareholders may choose Tito Botelho Martins, head of the company’s base metals unit, to replace Agnelli, Valor reported March 24, without saying where it got the information.

Vale shares have risen more than 10-fold in Sao Paulo trading since July 11, 2001, the day before Agnelli was named CEO, more than twice the fourfold gain for Brazil’s benchmark Bovespa index as iron-ore output and commodities prices surged. The company is now the world’s second-largest mining company by market capitalization after BHP Billiton Ltd., with a value of about 273.7 billion reais ($167.7 billion).

“Everything is going very well and the trend is positive,” Agnelli said Feb. 25 on a conference call with analysts. “We are going to be the best mining company in the world, and to be the largest one.”

To contact the reporter on this story: Juan Pablo Spinetto in London at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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