Vale to scrap controlling bloc, merge shares in major governance move – by Guillermo Parra-Bernal and Marta Nogueira (Globe and Mail/Reuters – February 20, 2017)

Vale SA plans to become a company with no defined controlling shareholder as soon as possible, in a landmark step aimed at enhancing transparency and equal rights for all shareholders in the world’s largest iron ore producer.

Controlling shareholders grouped under holding company Valepar SA agreed to stay together for up to 3-1/2 more years. Under those terms, they will present a proposal soon by which Vale will incorporate Valepar and proceed to merge the company’s several classes of stock into a single, common one by November.

The existing 20-year accord governing Valepar that expires in May will be extended through November to guarantee the transition. Holders of Vale’s Class A preferred shares who join the share conversion voluntarily will receive 0.9342 common stock, as part of the process.

To ensure completion of the plan, Vale would pay owners of Valepar a 10 per cent premium for their shares, implying a 3 per cent dilution for all shareholders. The former Valepar owners can sell the equivalent of up to 22 per cent of Vale’s common shares after a six-month lockup period starting in August expires, provided they keep a 20 per cent stake by November 2020.

The change represents a milestone in a country long hobbled by corporate governance abuses and reorganizations that hampered minority investors in most cases. Reuters reported on Jan. 19 details of the plan to make Vale a company with dispersed share ownership and the listing of a single type of stock.

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