Boeing Takes Up Brazil's Concerns -- WSJ
January 06 2018 - 2:02AM
Dow Jones News
By Dana Mattioli and Dana Cimilluca
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 6, 2018).
Boeing Co. is in talks with Embraer SA and Brazil's government
on ways to address the government's concerns about the U.S.
planemaker's potential takeover of its Brazilian rival, according
to people familiar with the matter.
Boeing and Embraer had informally agreed to terms that would
value the Brazilian company at $28 per U.S. share, the people said.
But after The Wall Street Journal reported on the talks last month,
some Brazilian officials came out against a deal.
President Michel Temer said the government would welcome a new
investment in Embraer but wouldn't permit a change in control of
the company. A government spokesman said Friday that the country's
position hasn't changed.
The companies are now trying to overcome the government's
resistance, which centers largely on Embraer's defense business.
Boeing is sensitive to those concerns and is proactively trying to
address them, one of the people said.
The American company is considering whether to allow Brazil's
government to retain a golden share in Embraer's defense business,
the people said. The government now has a golden share in the whole
company, giving it veto power over any transaction that would
transfer control of the former state-owned business, which is
considered a jewel of Brazilian industry. Embraer still has close
ties to the country's military establishment.
Boeing is also willing to take steps to protect Embraer's brand,
management and jobs, people familiar with the matter have said.
As of Friday morning, Embraer's U.S. shares were trading at just
under $27, nearly 35% more than their price just before the talks
surfaced. That gave the company a market value of about $5 billion.
The stock dropped by roughly 5% Friday afternoon after the Journal
reported on the state of the talks, as some investors were
disappointed that the potential price isn't higher. The shares
closed down 4.2% at $25.76. Boeing closed 4.1% higher at a record
$308.84.
It's uncertain whether the two sides will find a mutually
agreeable arrangement. But any deal would likely take between nine
months and a year to close, one of the people said.
The talks have drawn a rebuke from Bombardier Inc., Embraer's
Canadian rival.
Bombardier faces potential U.S. tariffs after Boeing lodged a
complaint over alleged state subsidies and unfair pricing. The U.S.
company has also objected to a proposed joint venture between
Bombardier and Airbus SE. People familiar with the deal see that
venture as a catalyst for Boeing's bid in Brazil.
"Boeing's acquisition of Embraer undercuts everything it said to
the U.S. government in the trade cases," a Bombardier spokesman on
said Friday.
Embraer, based in the city of São José dos Campos in the state
of São Paulo, is the world's third-largest commercial-jet
manufacturer by revenue and has some 18,000 employees. It's best
known for making regional jets in the 70- to 100-seat range, which
are heavily used on routes where demand doesn't warrant use of
larger Boeing or Airbus planes.
Boeing is the world's largest aerospace company with a market
value of about $180 billion. It makes commercial jetliners and
defense, space and security systems as well as military aircraft,
weapons, satellites and helicopters.
--Luciana Magalhaes in São Paulo and Doug Cameron in Chicago
contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and Dana
Cimilluca at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
January 06, 2018 02:47 ET (07:47 GMT)
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