Salvador Perhaps Brazil’s biggest accounting fraud scandal in history began on January 11 this year with a sober resignation announcement: Sergio Rial, CEO of retailer Americanas SA, announced that he was leaving the company after just nine days. He cited irregularities in the balance sheet as the reason.
20 billion real (almost four billion dollars) in liabilities to suppliers or banks have disappeared from the group’s books. In addition, there are debts totaling another 20 billion real. This came as a shock to shareholders and the stock exchange regulator: the retailer’s last published annual turnover was 55 billion real (2021). In 2022, the chain made losses. The share price plummeted.
Rial only spoke up on the LinkedIn business network days after his resignation. The ex-president of Banco Santander in Brazil said that while he had nothing to do with the losses, he would continue to provide Americanas SA’s key shareholders with “his wealth of experience” in an advisory capacity. He is proud to work with them, they are “pure-blooded capitalists”.
In doing so, Rial linked his fate with the three Brazilians who have ruled Americanas for 40 years — Jorge Paulo Lemann, 82, Marcel Telles, 72, and Carlos Sicupira, 74. The three head Forbes’ list of Brazilian billionaires and are the founders of the Brazilian investment company 3G Capital.
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With Americanas’ stock plummeting, their combined fortune may have shrunk by about half a billion dollars. But the accounting scandal could cost the three investors even more. Because doubts are growing among investors as to whether 3G is working seriously, and the question arises as to whether the company has trimmed its balance sheets over the years. Not only the reputation, but also the empire could be at stake.
Critics: Fraud was planned well in advance
In Brazil, only a few dare to speak openly about the scandal – the investors are too powerful, too influential. One of the few who sharply criticize the trio is André Esteves. He is the controller of the investment bank BTG Pactual, which is a lender affected by the scandal. “The three richest men in Brazil, demigods of global capitalism, are caught with their hands in the till,” Esteves complains. Everything indicates that this fraud was planned and carried out well in advance.
Billionaire Jorge Paulo Lemann is one of the founders of the Brazilian investment company 3G Capital.
(Photo: dpa)
With the irregularities, investors are now reminding themselves that other 3G companies also had problems with their balance sheets: the trio sold their railway company in 2014. After the takeover, three balance sheets had to be corrected. In 2019, 3G had to pay a high fine to the Sec for balance sheet manipulation at Kraft Heinz. In 2013, 3G bought the ketchup manufacturer Heinz together with the US investor Warren Buffett and two years later merged it with the food company Kraft.
Ten days later, the three investors released a statement saying they had never known about the accounting maneuvers or deception. “We have always let our actions be guided by ethical and legal principles over the decades,” it said.
The three 3G investment bankers gained their reputation as legendary investors outside of the financial sector: they bought Americanas, the Brazilian brewery Brahma and merged it with local competitor Antarctica to form Ambev. They then sold Ambev to Belgium’s Interbrew, but soon became the largest single shareholder there. In 2008 they took over number one in the USA with Anheuser-Busch. Since then, Anheuser-Busch Inbev – ABI for short – has been by far the largest brewery in the world, with returns that many brewing companies only dream of.
>> Also read: Kraft Heinz: Warren Buffett’s biggest flop
The Burger King snack chain was later added to the portfolio. With their private equity fund 3G, they now maintain a global food empire that is one of the largest in the world, from beer and soft drinks to French fries and burgers to ketchup and chips.
3G’s winning streak seems to have come to an end
Americanas doesn’t really fit into the portfolio of the trio – the company is neither successful with 45,000 employees, nor is its business model convincing: The 3,600 branches in Brazil are junk shops where cheap products are sold. The group’s digital platform was also unsuccessful. During the pandemic, Americanas, unlike the competition, did not manage to jump in sales in the Internet business.
As long as the trio was able to keep buying new companies and reducing costs there, the business model worked. But then in 2017 the attempt to take over the British-Dutch consumer goods and food group Unilever failed. Since then, 3G’s winning streak seems to have come to an end.
Because the Brazilians underestimated that traditional brands are attracting fewer and fewer consumers. Either they prefer healthier foods to industrialized mass-produced goods. Or they buy cheaper own brands in the retail chains. All of the 3G companies have lost around a third of their value in the last five years, i.e. around 16.5 billion dollars.
Anheuser-Busch Inbev stock is down nearly 4 percent since manager Rial resigned. At around four billion euros, the loss is significantly greater than that of Americanas.
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