Brazilian Court Orders Tenaris to Pay an Indemnification in Connection with its Acquisition of a Participation in Usiminas in 2012

Rhea-AI Summary

The Brazilian Superior Court of Justice (SCJ) has ordered Tenaris's subsidiary Confab and affiliates of Ternium, part of the T/T Group, to pay Companhia Siderúrgica Nacional (CSN) indemnification related to the 2012 acquisition of a stake in Usiminas.

CSN's lawsuit argued that a tag-along tender offer should have been made to non-controlling Usiminas shareholders, offering 80% of the acquisition price per share. Initial courts dismissed CSN's claims, but the SCJ reversed its earlier decision, granting CSN indemnification potentially up to BRL 942 million (approx. $180 million).

Despite the ruling, Tenaris maintains the claims are without merit and plans to appeal the decision. The company asserts that the SCJ decision contradicts previous legal opinions and court rulings.

Positive

• None.

Negative

• SCJ ruling requires Tenaris and affiliates to pay CSN indemnification up to BRL 942 million (approx. $180 million).
• Reversal of prior favorable court decisions could result in significant financial liability for Tenaris.
• Potential negative impact on Tenaris's financial performance and stock price.

Insights

Financial Analyst

The Brazilian court's decision to order Tenaris to pay an indemnification of up to BRL942 million (approximately $180 million) has potential short-term and long-term financial implications. For retail investors, the immediate concern is the liquidity impact, as $180 million is a significant sum potentially affecting Tenaris' cash reserves and its capacity to invest in growth opportunities. In the short term, there could be a negative impact on the stock price due to investor sentiment reacting to the financial burden.

Long-term implications revolve around potential reputational damage and legal costs associated with continued litigation. Investors should also monitor how the company plans to finance this indemnification—whether through existing reserves, debt, or operational cash flow—as each option has distinct impacts on Tenaris' financial health and stability. It is important to consider the company's historical performance in handling legal disputes and its ability to navigate regulatory environments.

Given Tenaris' strong belief that the claims are baseless, investors should be aware of the potential for continued appeals, which might prolong uncertainty. This ongoing legal battle might distract management and could divert resources from operational priorities.

Overall, while the financial impact is clear, Tenaris' strategic response will be critical in determining the long-term effects on the business.

Legal Expert

This legal development is significant as it highlights regulatory risks and the complexities of cross-border acquisitions. The Brazilian Superior Court of Justice (SCJ) reversing its decision indicates a volatile legal landscape and underscores the importance of understanding local laws and regulations when participating in foreign markets.

For investors, it's noteworthy that Tenaris plans to file motions and appeals against the SCJ decision. However, the legal process could be protracted and costly, adding layers of uncertainty. The decision also sets a precedent that could influence future M&A activities in Brazil, potentially increasing legal and financial scrutiny on similar transactions.

Understanding the legal basis of the indemnity—related to the 'tag-along' tender offer requirement—is crucial. This regulation is designed to protect minority shareholders, ensuring they receive equitable treatment in acquisitions. The reversal by the SCJ might reflect a growing emphasis on shareholder rights, which could shape investor confidence and companies' strategic approaches in Brazil.

Investors should closely follow the company's legal strategies and the outcome of further appeals, which will be important in assessing the potential long-term financial and operational impacts on Tenaris.

LUXEMBOURG, June 18, 2024 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE and Mexico: TS and EXM Italy: TEN) announced today that the Brazilian Superior Court of Justice (SCJ) resolved that Tenaris’s subsidiary Confab and certain subsidiaries of Tenaris’s affiliate Ternium, all of which compose the T/T Group under the Usiminas shareholders agreement, should pay Companhia Siderúrgica Nacional, or CSN, an indemnification in connection with the acquisition by the T/T Group of a participation in Usiminas in January 2012.

CSN and various entities affiliated with CSN had filed a lawsuit in Brazil against the T/T Group, alleging that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition.

On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals upheld the first instance court decision. On March 7, 2023, the SCJ rejected CSN’s appeal by majority vote. The composition of the SCJ panel in charge of the case subsequently changed and CSN made several submissions in connection with the SCJ decision, including a motion for clarification with the SCJ that challenged the merits of its earlier decision.

At today’s session, the SCJ completed its voting on CSN’s motion for clarification and reversed, by majority vote, its March 7, 2023 decision, and granted CSN an indemnification, with CSN being allowed to retain ownership of the Usiminas ordinary shares it currently owns. Depending on how the indemnification is calculated by other courts, and assuming monetary adjustment and interest through May 31, 2024, the potential aggregate indemnification payable by Confab could reach up to BRL942 million (approximately $180 million).

The Company continues to believe that all of CSN's claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator in February 2012 and December 2016, the first and second instance court decisions and the March 7, 2023 SCJ decision referred to above. The Company also believes that today’s SCJ decision on CSN’s motion for clarification is contrary to applicable substantive and procedural law. Accordingly, once the SCJ written votes are made available, Confab will file all available motions and appeals against the SCJ decision.

Some of the statements contained in this press release are “forward-looking statements”. Forward-looking statements are based on management’s current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to future oil and gas prices and their impact on investment programs by oil and gas companies.

Tenaris is a leading global supplier of steel tubes and related services for the world’s energy industry and certain other industrial applications.

Giovanni Sardagna        
Tenaris
1-888-300-5432
www.tenaris.com 

FAQ

What was the outcome of the Brazilian court ruling for Tenaris (TS) on June 18, 2024?

The Brazilian Superior Court of Justice ordered Tenaris's subsidiary Confab and affiliates to pay CSN indemnification potentially up to BRL 942 million (approx. $180 million) related to the 2012 Usiminas acquisition.

How much could Tenaris (TS) have to pay in indemnification to CSN?

Tenaris's potential indemnification to CSN could reach up to BRL 942 million (approximately $180 million).

What is the basis of CSN's lawsuit against Tenaris (TS)?

CSN's lawsuit alleged that Tenaris's acquisition of a stake in Usiminas in 2012 required a tag-along tender offer to non-controlling shareholders at 80% of the acquisition price.

What are Tenaris's (TS) plans following the Brazilian court's indemnification ruling?

Tenaris plans to file all available motions and appeals against the SCJ decision, asserting the claims are without merit.

What is the potential financial impact of the SCJ ruling on Tenaris (TS)?

The SCJ ruling could result in a financial liability for Tenaris up to BRL 942 million (approx. $180 million), potentially affecting its financial performance and stock price.