Brazil’s Vale embarks on major corporate governance reform plan

Shareholders of Brazil’s Vale SA, the world’s biggest iron ore producer, have just agreed to a major corporate governance reform plan, in a move which is widely expected to boost the company’s market capitalisation.

The plan, which will see Vale’s preferred shares converted into common stock, is designed to improve transparency, limit government interference, and tip the scales of power in favour of the company’s board.

Political meddling – the government is a major shareholder of Vale – weighed down the company’s stock during President Dilma Rousseff’s time in office. The government will however maintain a golden share in order to allow it to defend against hostile takeovers.

In a securities filing, Vale said the proposed conversion of preferred shares into a single, common stock was approved with the equivalent of 68 percent of the preferred shares that took part in the vote.

Minority shareholders voted to allow the controlling shareholders grouped under the holding company Valepar SA to retain control of Vale for three and a half years, after which Valepar will be absorbed by Vale, triggering the share conversion.

To ensure that the plan goes through, Vale have agreed to pay Valepar’s owners a 10 percent premium for their shares, implying a 3 percent dilution for all shareholders.

Investors expect the move to boost Vale’s share price and lead to a fall in the miner’s cost of capital.