Ternium says that the turnaround in the CSN/Usiminas case “scares shareholders” and harms Brazil

The decade-long legal dispute between Companhia Siderúrgica Nacional (CSN), owned by businessman Benjamin Steinbruch, and Ternium, from the Techint Group, has been grabbing attention in the political, legal, and market scenes.

At stake: R$5 billion and the technical understanding of the CVM and CADE regarding mergers, acquisitions, and controlling blocks.

The issue began in 2011 when Ternium acquired the shares that Votorantim and Camargo Corrêa held in the controlling block of Usiminas.

At the time, CSN owned about 16% of the mining company and was planning a hostile takeover. With Ternium’s entry, CSN changed tactics and, for its exit strategy, decided to claim the right of tag along. The CVM was called in, but invalidated the argument, ruling that there was no change of control in Usiminas.

Following this defeat of CSN, other setbacks occurred, at CADE and in the courts, where the company lost in the 1st instance, then unanimously in the 2nd instance, and finally in the STJ.

And then… everything changed.

In the declaration of appeals there was a turnaround after a change in the composition of the Third Chamber of the STJ.

Minister Paulo de Tarso Sanseverino passed away in March 2023 and, months later, Minister Marco Aurélio Bellizze declared himself disqualified, citing personal issues: his son had been hired by one of CSN’s lawyers. Both Sanseverino and Bellizze had been in favor of Ternium in the previous ruling.

The new outcome was announced in June this year and has drawn attention for imposing a fine of R$5 billion on Ternium and the payment of R$500 million to the law firms representing CSN as legal fees.

Ternium, controlled by the Techint Group, promises to fight to the end and has already stated that it may reduce its investments in Brazil, where the Italo-Argentinian group has been operating since 1947.

Techint Group’s counselor, Paolo Bassetti, spoke with the Brazil Journal about the company’s disappointment with the legal insecurity in the country.

In this fight with CSN, you have said that the judgment of the same case twice in the STJ is not a normal procedure. Why?

This change in merit has surprised everyone because there are no precedents in the Brazilian Judiciary. It is not common to change the merit of a decision in appeals for clarification, a resource that serves only to rectify any omission or contradiction in the process.

There was no change of control in Usiminas in 2012. This position was confirmed by the CVM, in the Federal Court in the 1st instance, unanimously in the 2nd instance, and in the STJ in March 2023. Then the second ruling in the STJ changed everything. But we will go all the way and we will not give up.

But what did CSN argue in the appeals for clarification?

CSN argued as a new fact the increase in Ternium’s participation in the control block of Usiminas in July 2023. In other words, an argument that alone should disregard the entire previous defense.

If Ternium took control of Usiminas last year by buying more Nippon shares, obviously it did not have control in 2012 when CSN filed the lawsuit. It’s a contradiction in itself.

The legal market has been commenting on the legal fees of CSN’s lawyers, estimated at around R$500 million. Does Techint also find this amount strange?

It is not for us to comment on the lawyers’ fees, but we can talk about facts. With that amount, our group could buy more equipment for our plants, which would generate more development and employment. This would help strengthen Brazil’s industry.

But is it a disproportionate amount of money?

You are the one saying…

The way the judgment stands, CSN receives compensation and retains its Usiminas shares. Is that correct?

This is a question that reveals the absurdity of this process. As it stands, we have a billion-dollar compensation for a competitor who illegally bought Usiminas shares and continues to disregard the CVM, CADE, and Brazil’s antitrust legislation.

Let me explain: Usiminas took the matter to CADE because everyone knows that a competitor cannot have more than 5% of another’s ordinary shares. In 2014, CSN made an agreement in which it committed, before CADE, to sell these shares by 2019, but this decision was never fulfilled.

I repeat: CSN signed an agreement with CADE, meaning it recognized the illegality of the shares, but so far has not kept its word. Usiminas even went to court to force CSN to comply with the law. And in this case, CSN lost again in two instances of the Federal Court of Minas Gerais, including the 6th region Federal Regional Court. The deadline to sell the shares expired on July 10.

It’s unbelievable how CSN disrespects the administrative justice and the Stock Exchange. This undermines the perception of legal certainty in Brazil’s capital market.

What is Ternium’s defense strategy to overturn the unfavorable decision at the STJ?

The legal strategy is in the hands of our lawyers. What I can guarantee is that we will appeal at all levels to restore legal certainty. This fact does not just impact the Techint Group, but all investors who are part of controlling groups in Brazil. If we happen to lose this fight, they better be prepared!

The Brazilian Foreign Trade Association (AEB) has just filed a Direct Action of Unconstitutionality (ADI), asking the Supreme Court for a clearer interpretation of the criteria that determine a Public Offering of Acquisition (OPA). It is requesting an injunction to suspend the judicial processes that discuss the obligation of a OPA for change of control, and the processes involving compensations resulting from the violation of these criteria. How do you view this measure?

It is expected. It is essential to provide clarity and security to the market. Everyone is concerned, which is why the entity is requesting a stance on the interpretation of the Company Law. The AEB also understood that the new interpretation violates legal certainty and contradicts the understanding established by the CVM, creating a scenario not foreseen in the law.

How was the entry of the Techint Group into Brazil?

We have been in Brazil since 1947. We built the main gas and mineral pipelines in the country. We acquired a stake in CONFAB in the 1990s and decided to grow in the steel market from 2006. Since 1996, I have maintained a commercial relationship with Brazil. I settled here in 2010 when I was responsible for the greenfield project of a steel mill at Porto do Açu.

We obtained the environmental license and were ready to start construction when we received a call from Votorantim and Camargo Corrêa, who wanted to sell their position in the controlling group. We entered with 27% and started sharing control with Nippon Steel and Usiminas Pension Fund, which had 30% and 10%, respectively. It was a shared management.

Can you guarantee that investments in Usiminas and other Ternium steel mills in Brazil will continue if the STJ decision is overturned?

You see, this is not just a matter of interest to Ternium or the Techint Group. Industrial investment in Brazil is in jeopardy due to legal insecurity because investors assess the scenario and think long-term.

Brazil is in a process of raw material dependency, but there is an opportunity to strengthen the development of industrial value chains. If the country addresses this issue of legal uncertainty head-on, it will create room for investments. Our investments in environmental improvements in our facilities are still on track. This is a commitment of the group.

How do you see the future of the group in Brazil?

With optimism, as long as the issues of legal uncertainty are resolved. We are leaders in the steel market in Mexico, Argentina, and Colombia, and we are interested in staying and growing in Brazil. We went from zero in 2010 to 8.3 million tons of steel sold and 16,000 direct employees in 2023, including Usiminas and Ternium Brazil.

We are the second largest steel producer in the country. It was a $25 billion investment to build this position in Brazil. But we want and need to invest more to keep Ternium and Usiminas competitive, generating income and social investments in Vale do Aço, São Paulo, Rio de Janeiro, and throughout the country. We want to continue producing industrial development in Brazil.

So why do you say that you may suspend investments in Brazil?

Because this legal uncertainty creates doubts. The turnaround we had in the review of appeals in the dispute against CSN, about a supposed obligation of a public offering of shares in our entry into Usiminas in 2012, scared our shareholders.

This legal dispute had been going on for 12 years and we had won in all instances – until the STJ changed its mind.

Are the investment impacts already happening or is it a latent risk?

The impact is real. The appetite for investing in Brazil has diminished. Our job is to show the absurdity of this decision to reverse it. Furthermore, this is not just a concern of Ternium or the Techint Group. This needs to be a concern for all of Brazil because it affects employment, development, and the country’s economy as a whole. With such low steel consumption and opportunities in the value chain, Brazil should attract – not scare away – those who want to invest in industry.

Is there room for an agreement with CSN?

We are convinced that the damage caused by legal insecurity is much greater for Brazil than for the companies. We believe in the Brazilian justice system. We will defend ourselves at all levels and restore the truth of the facts. By doing this, we are contributing to Brazil by showing that those who disregard the rules will lose.

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12 years later, STJ rules in favor of CSN – but the fight with Ternium is not over yet