Ternium's USiminas Indemnification: A Storm of Legal Uncertainty
Friday, Dec 6, 2024 4:44 pm ET
TX --
The Brazilian market has been buzzing with news that Ternium S.A., a leading Latin American steel producer, has been ordered by a Brazilian court to pay an indemnification in connection with its 2012 acquisition of a participation in Usiminas. The decision by the Superior Court of Justice (STJ) is a blow to Ternium, but the company has vowed to appeal the ruling, leaving the situation in a state of limbo.
The STJ's decision, announced on June 18, 2024, has set the stage for a potential storm of legal uncertainty for Ternium and its shareholders. The court ruled that Ternium's subsidiaries, Ternium Investments and Ternium Argentina, along with Tenaris's subsidiary Confab, must pay an indemnification to Companhia Siderúrgica Nacional (CSN) for the acquisition of a stake in Usiminas. The amount has been estimated at BRL1.9 billion (approximately $307 million) for Ternium Investments and BRL0.7 billion (approximately $109 million) for Ternium Argentina.

This ruling is a significant setback for Ternium, as it not only imposes a financial burden but also raises questions about the company's strategic decisions and risk management. The court's decision was based on the interpretation that Ternium should have launched a tender offer to all non-controlling holders of Usiminas ordinary shares when it acquired its stake in 2012. Ternium maintains that it was not required to do so, setting the stage for a lengthy and costly appeals process.
The legal uncertainty surrounding the STJ's decision has the potential to impact Ternium's valuation and stock performance. The indemnification payments, if not successfully appealed, could strain the company's liquidity and cash flow. Furthermore, the ongoing legal battle could create uncertainty and distraction for Ternium's management, potentially impacting its decision-making process and investment plans.
As Ternium navigates the complexities of the Brazilian legal system, investors must stay informed and vigilant. The outcome of the appeals process will be crucial in determining the company's financial health and future prospects. While the indemnification payments represent a significant financial burden, Ternium's strong financial position and robust business model may help it weather the storm. However, the company's strategic plans and acquisition targets could be influenced by this financial obligation, as it may prioritize organic growth over aggressive M&A.
In conclusion, Ternium's legal battle with CSN highlights the importance of adhering to Brazilian laws and regulations in corporate transactions, particularly in relation to public tender offers and change of control scenarios. As the appeals process unfolds, investors should closely monitor Ternium's financial performance and any developments in the case to make informed decisions. The outcome of this legal uncertainty will be critical in shaping Ternium's future and its position in the global steel industry.