The litigation surrounding the sale of Eldorado exposes risks for foreign capital in Brazil.

Today, on August 4th, the Brazilian newspaper “O Estado de São Paulo” released a summary of the Eldorado ownership dispute. The article, authored by Carlos Eduardo Valim Sadpallo, has been thoughtfully translated below by ChatGPT:

A R$ 15 billion deal involving the sale of the Batista brothers' pulp mill has been dragging through the courts since 2018; legal uncertainty may deter foreign investors.

The dispute over control of the Eldorado Brasil pulp manufacturer has become one of the longest corporate battles in recent Brazilian business history. The entanglement, which pitted two massive groups against each other—the Brazilian holding company J&F Investimentos (owner of JBS and other businesses) and the Indonesian company Paper Excellence—has been ongoing for six years and involves a sum exceeding R$ 15 billion. The litigation, which doesn’t appear to be nearing resolution, could have far-reaching implications even in the agribusiness sector, as it has raised questions about foreign companies’ ownership of land in the country.

The most recent development in this protracted dispute occurred last Tuesday when the Federal Regional Court of the 4th Region (TRF-4) decided to uphold an injunction that suspends the transfer of Eldorado’s shares to the Indonesian group until the final judgment of a lawsuit challenging the deal.

The feud between the two groups dates back to 2017. In that year, the J&F group, led by brothers Joesley and Wesley Batista, faced a delicate moment following corruption allegations revealed during Operation Car Wash (Operação Lava Jato). They needed to sell assets, and one of those was Eldorado, a pulp manufacturer with a factory in Três Lagoas, Mato Grosso do Sul. The deal was struck with Paper Excellence, controlled by Indonesian billionaire Jackson Wijaya.

At the time, Paper Excellence acquired 49.41% of Eldorado for the equivalent of R$ 3.77 billion. According to the agreement, they would have the right to acquire the remaining 50.59% of shares held by the Batista family’s holding company, in a deal valued at R$ 15 billion based on the prevailing exchange rates. However, conditions changed, the holding company recovered, and the terms became less attractive. The agreement ended up in court, with J&F claiming that the Asian investors failed to release certain guarantees for debt payments.

In late 2018, Paper requested that the matter be decided by an arbitral court. Between March 2020 and February 2021, the International Chamber of Commerce analyzed the case and decided, by a vote of 3 to 0, that the J&F group would have to sell 100% of Eldorado Celulose to the Asian group, according to the agreement signed between the parties in 2017. However, J&F appealed to the courts to annul the arbitration, alleging a conflict of interest involving one of the arbitrators - due to their relationship with a law firm that represented Paper - and also claiming that their defense was subject to cyber espionage.

The president of one of the few major law firms not representing either party in the case told Estadão, under anonymity, that he agreed the victory for J&F in this case would jeopardize the entire framework for foreign acquisitions of Brazilian companies in sectors such as agriculture and energy.

In a statement, Paper only expressed regret that the purchase and sale contract for Eldorado Celulose, signed in 2017, had not yet been fulfilled by J&F, which continued to use delaying procedural tactics.

J&F, on the other hand, asserted in a note that the contract for the purchase of Eldorado by Paper was illegal and that the case “does not bring any novelty or potential impact on other businesses, as it exclusively concerns the application of legislation in force for decades in the country.”

Regarding the recent developments, in October of last year, the Indonesian group had already secured a 2-0 score in favor from appellate judges at the São Paulo State Court of Appeals and needed just one more favorable vote, totaling three out of five possible votes. However, on January 23, one day before the third judge’s vote, Minister Mauro Campbell from the Superior Court of Justice suspended the proceedings, granting an injunction requested by J&F.

The turnaround in the case occurred due to the discussion about foreign ownership of land. On May 18th of last year, Luciano Buligon, the former mayor of Chapecó (SC), filed a lawsuit requesting the nullification of the contract for the purchase and sale of Eldorado shares. Buligon cited as an argument a notarial record registered by a businessman and politician from Chapecó, Valdir Crestani, who claimed to have learned that Eldorado was exploring the possibility of buying land in the region and that this would “endanger the regional economy” if the company were taken over by a foreign group. The lawsuit was deemed invalid on May 26th of last year. Buligon appealed to the TRF-4 on June 6th, where Judge Rogério Favreto granted an injunction blocking the deal until the merits of the issue were decided – a decision that was upheld in last Tuesday’s ruling.