Exclusive: Boeing willing to preserve Brazil's 'golden share' in Embraer deal

From Reuters - January 18, 2018

BRASILIA (Reuters) - Boeing Co (BA.N) is working to overcome the Brazilian militarys objections to its proposed tie-up with Embraer SA (EMBR3.SA) with alternatives that would preserve the governments strategic veto rights and ensure safeguards for its defense programs, four people familiar with the matter told Reuters.

The U.S. planemaker was forced back to the drawing board after Brazilian officials balked last week at the idea of turning Embraer into a subsidiary such as those that Boeing operates in Australia and Britain, according to the sources, who requested anonymity to discuss the negotiations freely.

Boeing came to buy Embraer, not for a partnership or a joint venture that we are open to, but to take control of the company. This was rejected, said one of the sources, a government official. It is up to Boeing to come back with a new proposal.

Boeings proposed tie-up with Embraer, the worlds third largest planemaker, would give it a leading share of the 70- to 130-seat market and create stiffer competition for the CSeries program designed by Canadas Bombardier Inc (BBDb.TO) and run by European rival Airbus SE (AIR.PA) since last year.

Since the news broke last month that it was in talks with Boeing, Embraers shares are up 22 percent in New York, where 51 percent of its stock is listed, bringing its market capitalization to $4.6 billion.

Boeings proposal would value the company at $5 billion to $6 billion, a person familiar with the negotiations said.

New York-listed shares in Embraer (ERJ.N), which were down 1.6 percent in afternoon trading, erased losses after the Reuters report to gain as much as 0.5 percent.

Boeings plan has snagged on concerns in Brasilia that Washington would get final say over Brazilian defense programs and use of technology developed in the country, including satellite and air-traffic control systems.

The Brazilian government holds a golden share in Embraer giving it veto power over strategic decisions involving military programs and any change in its controlling interest.

Boeing would be willing to preserve the governments golden share in Embraer, the people familiar with the matter said, but that may not be enough to win support.

Embraer and Boeing declined to comment on the matter.



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