It has been nothing short of a blockbuster year for Companhia Vale do Rio Doce (CVRD). The Brazilian mining behemoth surged to the number two spot in the global ranking of mining companies by pulling off an acquisition unprecedented in size and scale for emerging markets. Its $18 billion purchase of Canada’s Inco earned it a slew of LatinFinance awards for 2006, including Best Hostile Takeover, Best Cross-Border M&A, Best Syndicated Loan and Best Corporate Bond.
While this region-transforming deal is the fruit of months of toil by teams of bankers, lawyers and corporate executives, credit for it goes mainly to CVRD chief Roger Agnelli. The CEO is lauded for skillfully orchestrating a single, well-timed and fatal lunge for the Canadian nickel miner.
An avid chess enthusiast, Agnelli has long been known for his strategic opportunism. As a rising knight in the ranks of Brazilian financial firm Banco Bradesco in the 1980s, he displayed a broad understanding of the bigger picture. “He knew the world was ‘global’ even before he knew what that word meant,” says a former colleague who watched Agnelli move from working under Mario Teixeira, then head of Bradesco’s investment banking unit, to CEO of Bradespar, one of Brazil’s biggest investment companies, and finally to CVRD.
“As a banker, he had a sophisticated sense of how the pieces all fit together,” notes Nicholas Grabar, a partner at Cleary Gottlieb Stein and Hamilton who recalls working with Agnelli on the listing of pulp maker Aracruz Celulose, which was the first Brazilian company to put shares on the New York Stock Exchange. At the time, Agnelli, who was handling Bradespar’s portfolio of companies, became the de facto spokesman for Brazilian banks as they coordinated the transaction with Salomon Brothers.
With close ties to Teixeira and a reasonable grasp of the English language, the young banker increasingly found himself at the center of discussions involving some of Brazil’s most prized companies. When the time came for CVRD to separate from Companhia Siderúrgica Nacional (CSN) in 2001, Agnelli was a natural pick for the chairman post.
Luck, Cunning or Hard Work?
Critics say Agnelli, who turns 47 this year, has a Machiavellian streak and just got lucky. He was certainly in the right place at the right time to take the helm of CVRD, whose shares constituted a large portion of the Bradespar.
When the young banker was appointed chairman of CVRD, the company already had a long history of high quality management and a global strategy. By virtue of its monopoly over Brazil’s iron ore industry, CVRD was one of the country’s biggest cash cows. Fourteen months later, Agnelli was handed the title of CEO, too.
For the Inco takeover, the stars were perfectly aligned in terms of commodity prices and interest rates. But friends of Agnelli point out that his work ethic and determination have driven CVRD for years. “He’s a workaholic,” observes one friend. “He works seven days a week, and he likes it. When you like something, it doesn’t weigh on you as much.”
A Brazilian banker who knows Agnelli says there’s no doubt his perseverance is firmly stamped on the more globally ambitious CVRD. In 2004, a year before it became the first investment grade-rated company in Brazil, CVRD tried without success to acquire Canada’s Noranda, a diversified miner with a number of nickel mines that today is owned by Falconbridge.
“He’d been watching that market for a while,” notes João Roberto Teixeira, a vice president in charge of corporate clients at ABN Amro, one of the banks to lead CVRD’s Inco acquisition and be rewarded for it with take out business. “But he kept hammering at it and finally managed to purchase Inco,” Teixeira reflects.
CVRD’s hostile bid – a single and final all cash offer of $17.6 billion – exemplifies a negotiating prowess that Teixeira says is a hallmark of Agnelli’s style. Indeed, the company’s successful one-time offer stands in stark contrast to a fellow Brazilian steel maker’s botched attempt to buy London-based Corus. That company, CSN, lost a bidding war for the prize to another ambitious emerging market player, India’s Tata Steel.
Detail Oriented
While Agnelli is known for coming up with the big ideas, he isn’t entirely above the busy work and details of a transaction. Raphael Biderman, a mining analyst at BBVA Bancomer in Mexico City, recalls a meeting he attended in the late 1990s when Agnelli was still at Bradespar managing the bank’s investments in an array of Brazilian companies.
“Roger led the discussion and asked very specific questions that showed he knew a lot about the mining sector, even though he was still a banker at the time. He seemed to have an aggressive go-getter type of stance and seemed to display a more global view than the average Brazilian businessman at the time,” recalls Biderman. “I walked out of there thinking to myself: Who is that guy?”
Agnelli is still very detail-oriented. ABN’s Teixeira recounts that as CVRD and its investment banks were issuing the bonds used to take out the acquisition loan, Agnelli made sure he was kept abreast of every major decision and gave the final word on the pricing of the deal. His efforts paid off: CVRD placed the biggest ever cross-border Latin American corporate bond and the largest ever debenture.
In keeping with the tradition of CVRD’s top quality management, Agnelli has, by all accounts, surrounded himself with highly respected and competent executives. The CVRD ranks include: CFO Fabio Barbosa, who among other things has held posts at the World Bank and Brazil’s finance ministry; and Murilo Ferreira, a 30-year CVRD veteran who became Inco’s CEO at the end of January.
Investors Charmed
Brazilian and international buysiders alike are bullish on Agnelli and his team. They appear to have little doubt that the charismatic CEO can fuse a Brazilian and Canadian mining company without too much of the downside often seen in cross-border M&A. “We have a lot of confidence in the management of CVRD,” notes the head of a large US-based emerging markets investment fund that purchased a significant portion of CVRD’s bond issue. “We think they’ve done an excellent job on how they manage their company.”
Analysts say the technical aspects of integrating two distinct companies, such as generating economies of scale and capitalizing on synergies, will occur smoothly. “The real question is whether the price of nickel will remain at its current levels,” says Paolo di Sora, an analyst at Itaú BBA in São Paulo. “If it continues to rise, CVRD will be able to pay down the entire price of Inco in a short period of time.” On the flip side, a significant slide in the price of nickel could throw into question a long-developed strategy to diversify into high-demand metals.
Still, analysts and investors seem to appreciate the chief executive’s sensitivity to the buyside. “He knows what investors want and can articulate a clear strategy and then follow through with it,” says Catarina Pedrosa, a mining analyst at Banif Investimento in São Paulo. She adds that CVRD is the only Brazilian company that tells investors what the minimum dividend payout will be for the full year. With levered free cashflow in the ballpark of $834 million, the company is in a unique position to be able to provide this kind of guidance.
While he has a reputation for being a tough boss, Agnelli is far better known for his charm and magnetism. “He’s comfortable with all kinds of people and treats them extremely well,” notes a banker who worked alongside him for several years. “I’ve never once heard him raise his voice, though what he doesn’t communicate with his voice can be very clearly transmitted through his look.”
“Big smile, big laugh and big handshake” is how Cleary Gottlieb’s Grabar describes Agnelli, who is also known for being playful with colleagues when the situation permits. This ease of interaction throughout the ranks has come in handy in recent years. Agnelli has ready access to Brazilian President Luiz Inácio Lula da Silva, and he moves freely among the country’s most influential business and political operators.
His ascension into this realm has brought new responsibilities beyond running a publicly traded company. Two years ago, Agnelli spoke out on the overtaxation of businesses, saying it threatened foreign direct investment in Brazil. And while he and Lula are viewed as friends who even convene at public and private functions, Agnelli has been a vocal defendant of former Brazilian President Fernando Henrique Cardoso, whose administration came under attack from Lula’s leftist worker’s party during the last election. The Cardoso administration oversaw the privatization of several Brazilian companies, including that of CVRD. Since it was privatized in 1997, CVRD’s market capitalization has surged from $10 billion to over $70 billion.
Armed with little more than a bachelor’s degree in economics, a knack for playing chess and a big smile, Agnelli rose to the top of the region’s largest private company. Now he commands some of the world’s most sought-after resources and has the clout to access enormous pools of capital from investors around the globe. Agnelli has lifted the bar for Latin America in a big way, giving the region something higher to aim for and a new figure of pride for the rest of the world to see. For all of this, he is the 2007 LatinFinance Man of the Year. LF