Via Varejo Offering Gives Kleins Exit After Valuation Clash

Via Varejo SA’s 2.85 billion-real ($1.2 billion) equity sale is giving Brazil’s billionaire Klein family a way to cash out of the home-appliance retailer they founded after a disagreement with other owners about its value.

Chairman Michael Klein, whose family owned a 47 percent stake, sought to reduce that to as low as 26 percent. The Kleins have contested the price they got in the 2010 sale of their company Casas Bahia Comercial Ltda. to Cia. Brasileira de Distribuicao Grupo Pao de Acucar, which merged it with its unit Ponto Frio to create Via Varejo. The offering probably came as Klein failed to reach agreement with Pao de Acucar on the matter, said Felipe Miranda, an analyst at Empiricus Research.

Shareholders in yesterday’s sale priced units, each of which corresponds to one voting and two preferred shares, at 23 reais, according to a regulatory filing. That was below the range of 25.60 reais to 33.60 reais the company had estimated in a prospectus.

“The climate for share offerings in Brazil couldn’t be worse at the moment, so investors are seeing this sale only as a way to try to resolve a conflict between shareholders,” Miranda said by phone from Sao Paulo. “It’s possible that they preferred to sell shares at a lower price rather than wait for a better time just to put an end to the tension.”

Press officials for the Klein family and Pao de Acucar declined to comment when contacted by phone. Via Varejo’s press officer didn’t respond to a phone call seeking comment.

Via Varejo’s shareholders sold as many as 123.7 million units in the offering, according to the filing. The units start trading on Dec. 16.

The existing stock declined 4.9 percent to 9.51 reais at the close of trading in Sao Paulo.

Market Capitalization

The Rio de Janeiro-based retailer, which operates the Casas Bahia and Ponto Frio chains in Brazil and has a market value of $12.9 billion, will have a public float of 29.3 percent once the sale is completed, up from 0.6 percent before the deal, according to the filing. Credit Suisse Group AG is the main underwriter.

“The increased liquidity will also help the Klein family to sell shares in the market if they want to,” Miranda said.

The Klein family sent a letter to Pao de Acucar in October 2012, citing a report by KPMG LLP, questioning an estimate of the combined value of their company and the Pao de Acucar unit, which was the basis of the sale price. Pao de Acucar confirmed in a regulatory filing later that month that KPMG had been hired and defended the appraisal.

KPMG finished its audit in May this year, according to a regulatory filing by Pao de Acucar in Aug. 7, and the company hasn’t yet disclosed its conclusions.

‘More Liquidity’

Samuel Klein, a Polish immigrant and Holocaust survivor, founded Casas Bahia in 1952 and sold it to Pao de Acucar in 2010. He transferred his shares in Via Varejo to his children, including Michel, and grandchildren in September.

Via Varejo’s adjusted net income more than tripled in 2012 from 2011 after three straight years of losses.

While the units sold yesterday were priced below the company’s targeted range, the outlook for Brazilian retailers remains positive even as the Latin American country’s economic recovery loses momentum, according to Joao Pedro Brugger, who helps manage about 400 million reais as a portfolio manager at Leme Investimentos.

‘Reasonable Rates’

“Sales keep growing at reasonable rates,” Brugger said in a phone interview from Florianopolis, Brazil. “And to have such a big company in the market, with more liquidity, helps to boost the sector’s visibility among investors.”

Brazil’s gross domestic product declined 0.5 percent in the third quarter from the previous three months, the biggest contraction since 2009.

While retail sales in Brazil have been growing faster than GDP, the latest data point to a slowdown in consumption, said Gustavo Mendonca, an economist at Saga Capital, said by phone from Rio de Janeiro.

“There’s a limit to how much you can stimulate the economy through consumption,” Mendonca said. “There are many signs that the economy may be weakening.”

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