At the end of 2023, the National Institute of Colonization and Agrarian Reform (INCRA) notified the São Paulo Commercial Board (JUCESP) and the Securities and Exchange Commission (CVM) about the impossibility of selling the controlling interest of Eldorado Brasil Celulose S.A. (Eldorado) to C.A. Investment Brasil S.A. (CA Investment), due to the lack of prior authorization from the National Congress, as stipulated in the applicable legislation.
The Technical Note No. 2845/2023/SR(MS)F1/SR(MS)F/SR(MS)/INCRA, issued by INCRA on 12/21/2023 (Technical Note), considered that Eldorado (a Brazilian company under Brazilian control) owns and leases rural properties covering an area greater than 100 indefinite exploitation modules (MEI) and that the transfer of the remaining 50,5% of Eldorado’s shares to CA Investment would lead to the transfer of its control to a foreign company, requiring prior authorization from the Brazilian National Congress.
Considering that prior authorization from the National Congress (and INCRA) was not obtained, the Technical Note concluded that the sale agreement of Eldorado’s shares violated Laws No. 5.709/1971 and 8.629/1993, Decree No. 74.965/1974, and Normative Instruction No. 88/2017. Therefore, it would be null and void.
The conclusion of the Technical Note is in line with the court decision issued in July 2023 by the Federal Regional Court of the 4th Region (TRF 4), in the case of a popular action filed against CA Investment, Eldorado, INCRA, J&F Investimentos S.A., Paper Excellence B.V., and the Attorney General´s Office, which ordered the suspension of the transfer proceedings of shares issued by Eldorado to CA Investment.
Finally, the Technical Note made it clear that:
(i) obtaining approval from INCRA, at the CDN – National Defense Council and/or the National Congress, when applicable, for the direct or indirect acquisition (via corporate transactions) of ownership or leasing of rural properties must always precede the realization of such intended operations, and may eventually be regulated in preliminary acquisition agreements as a suspensive condition;
(ii) INCRA understood that the corporate transaction of acquiring shares (corporate control) itself would be null and void and not the real estate agreement itself (for the acquisition of rural property or lease); and
(iii) the decision addressed only the restrictions applicable to the acquisition of ownership and/or leasing of rural properties, without addressing the application of such legal restrictions to other types of agreements involving rural properties (such as real surface rights, usufruct, and/or lease assignments).
Due to INCRA’s determination on 01/02/2024, Eldorado issued an announcement with the purpose of informing the TRF4 and INCRA decisions. The communication stated that Eldorado would "instruct its shareholders to take appropriate actions, which, according to the Technical Note, include canceling the acquisition. If there is mutual interest in a new transaction, they will request prior authorization for the deal from INCRA and other competent authorities".
