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André Esteves is in a hurry. In the last two months, this 41-year old banker from Rio de Janeiro, who controls BTG Pactual, made profitable businesses in a surprising rhythm to his already high standards of aggressiveness. In December, he announced that a group of foreign investors (six funds and four families) would buy 18% of BTG Pactual for 1.8 billion dollars. With this transaction, the value of Esteves’ participation in the bank’s stock increased to around 3 billion dollars. A little more than one month after the contract with the funds, he was signing the purchase of ruined PanAmericano, the bank of entrepreneur Silvio Santos, for 450 million reais – such a polemic media event that placed the bank’s name in the list of most mentioned words at Twitter. In the same week, Esteves acquired retail chain Casa & Vídeo, from Rio de Janeiro. In two months, he simply seemed to be everywhere at the same time. “Today, the bank’s greatest challenge is to use capital efficiently”, says Esteves. “We’ve never had so much money for investments in such a short time.”
What’s the reason of such urgency? Here, two essential components can explain André Esteves’ rush. The first reason is inherent to his personality. Some anxiety, high doses of ambition and unusual boldness to risk have contributed to what he is today. Born to a medium social class family in Tijuca, in the north part of Rio de Janeiro, and graduated in Mathematics, Esteves started at former Pactual Bank as a system analyst, repairing computers, 21 years ago. He became billionaire in 2006, when, as the bank’s president, he sold Pactual to Swiss UBS for 2.6 billion dollars. But he decided it wasn’t enough: soon after that, he unsuccessfully tried to buy the control of UBS. Esteves didn’t want to be just one more in the bank’s hierarchy, but otherwise, he wanted, in his words, “to change 2 into 6 billion dollars”. Then, he made a proposal to have Pactual back, which was also unsuccessful. He forgot the bank and created BTG in 2008. In April 2009, with the international financial crisis, UBS decided to sell the Brazilian unit. Esteves bought it in a few days. That’s how BTG Pactual was created.
However, another strong reason can explain the rhythm at which Esteves has operated recently, which is particularly related to the current moment and that has been kept secretly so far. To get the funds, he had to accept a high-risk clause. According to what EXAME found out, Esteves assumed in the contract to provide a 20% return a year to his new foreign partners until the bank’s initial public offer date. The agreement works as follows: if Esteves gets to take BTG Pactual to the stock exchange by the end of 2011, he will have to give back 360 million dollars for the invested amount of 1.8 billion dollars. But, if something goes wrong – either profits below the expected level or a bad scenario of the stock exchange – and if the IPO is postponed, the investors’ participation in the bank will increase 20% a year, with no additional funding. Esteves doesn’t run the risk of losing the control of BTG. In an interview to EXAME, he, after an 8-second break, said that things are not exactly this way. “But, for reasons of confidentiality, I can’t say how it really is”, he says. His discomfort is easy to understand. This clause makes the business announced in December not as excellent to him as it seemed to be. But the transaction follows Esteves’ style of betting on himself and assuming the risk. If that works out, he’ll make the IPO at the end of this year, get rid of the commitment to investors and be acclaimed; otherwise, Esteves and his partners will lose much money every year - and, as the return is guaranteed in dollars, any depreciation of real currency will increase the problem dimension. “This is the year of his life”, says a former partner. “He’ll speed up as never before.”
GOOD LUCK
The assumed risk is high, above all, because the final result is dependent on variables that are fully not under the control of BTG Pactual, such as the conditions of the international markets and the exchange rate. In past moments, Esteves made similar transactions – and, undoubtedly, good luck has been on his side. In 2007, when he was sent to London to assume the fixed income area of UBS, he wanted to change the money he’d received for the sale of Pactual into stock of the Swiss bank. He was detained by Gilberto Sayão, the partner with whom he shared the bank control. If Sayão hadn’t prohibited this idea, Esteves would’ve lost much money: the stocks of UBS have fallen more than 60% since that year. At the end of 2007, when he tried to purchase Pactual again, Esteves offered 5 billion dollars to the Swiss bankers, who refused his proposal. Once again, he was lucky, as the crisis in 2008 would soon make the stocks fall worldwide.
When he finally bought Pactual back, Esteves made the best business of his career. Scared with the crisis and with short money, UBS was sold for 2.5 billion dollars, a bargain. And Esteves made of his dreams come true: for the first time he had become the absolute owner of a bank. And what came after that shows his incredible ability to make money. When he created BTG Pactual, he intended to start a great emerging investment bank, something like Goldman Sachs of the south hemisphere. He brought partners of high reputation to work with him. Economist Persio Arida, former president of the Central Bank, was one of the first to join him. For the international division, Esteves hired executives that he knew well from UBS, including Steve Jacobs, who negotiated the sale of Pactual to BTG. Esteves liked the negotiation so much that he took Steve to work with him some months later.
With the team established, he started buying many companies, such as chains of drugstores, parking area management companies, hospitals and gas stations (see the chart), managed by his 35-year-old partner Carlos Fonseca. According to some executives related to the bank, BTG invested around 2 billion reais in the process. “The best growth opportunities in Brazil are in the real economy”, says Esteves, who is funding 1 billion dollars to increment his acquisitions. To manage the companies, he got a new partner, consultant Claudio Galeazzi, former president of Pão de Açúcar. “Here, a transaction of 100 million reais is decided in 5 minutes”, says Galeazzi, surprised at how fast business are made by BTG. Besides the acquisitions, the bank kept its prior strength in areas such as resource management and the profitable support to companies in mergers or stock issuance. The result is that – a bank that cost 2.5 billion dollars in April 2009 is now, according to the investors who entered the business last year, worth four times the original amount.
As this series of bold businesses shows, Esteves has developed a peculiar business style – using the words of a former partner who worked with him for more than 10 years, he likes to push to his limits. Then, he has naturally become a polemic character. A good example of his style of making business is his relation with Amaro family, controller of TAM. After years trying a negotiation with the family, Esteves got the authorization to negotiate the merger of TAM with Chilean LAN. But he didn’t have a simple authorization as those given by other companies to other banks. According to the agreement signed by Esteves and Amaro family in July 2009, his fees as a permanent financial agent would be linked with TAM stock appreciation. In the same period, Esteves became a member of the company’s administration council. His dual function as the company’s top management member and financial agent terrified some councilors, who saw in that situation a conflict of interest. Luiz Antonio Vianna, former president of Pão de Açúcar, made a protest by leaving the council (Vianna didn’t make any declaration on the case). “We didn’t believe that the family would let the fox come into the hen house, but that’s what happened”, says a former council of TAM. A little more than one year after that, Esteves got to make business with LAN. TAM stocks increased fast when the merger was announced. And, because of that, according to a partner of BTG and an executive close to Amaro family, the commission due to Esteves is almost 150 million dollars, to be paid if the business is approved by the regulatory organs of Chile and Brazil. On the other hand, JP Morgan, the bank that supported LAN in the business, earned “mere” 8 million dollars.
FIGHT OF BILLIONAIRES
This style of “pushing to one’s limits” doesn’t work out all the times. That’s what happened when Esteves tried to negotiate the sale of Vale, the largest private company in Brazil, to billionaire Eike Batista in 2009. According to executives that followed the negotiations, Esteves said to Eike that he was close to Lázaro Brandão, president of the administration council of Bradesco, second highest stockholder of Vale. That would enable to keep the negotiations. Then, Eike said to Esteves to go ahead. However, the negotiations did not succeed, and it seemed to EBX that Esteves didn’t have so much influence on Bradesco as he had shown and that he would have said to the media that he was making the business of the century. Eike got furious and cut relation. Some days later, Esteves went to Rio to try a meeting with Eike, but it didn’t work out. Annoyed, Eike made a point of showing the messages in his mobile sent by Esteves, in an attempt to be closer again. “The contact with people like you make me feel like producing. I admire you, man”, wrote Esteves. Almost one and a half year later, the relation is better. Eike didn’t want to speak to EXAME about this subject. Along the last two decades, André Esteves experienced a rare transformation in our financial system. Maybe only Marcel Telles, who used to be a trainee at Garantia Bank and became one of the controllers of AB InBev, the largest brewer in the world, has had a similar experience. Telles had an additional advantage since the beginning, as he could speak English. Esteves had only basic knowledge of English when he started working in the fixed income area of Pactual. He eliminated that deficiency as well as other disadvantages with absolute dedication to work and studies, a rhythm that he has kept until today. His work starts at 8 am and rarely ends before 9 pm. Vacations with the family are limited to two weeks a year. “If you compare that Esteves from those days to him today, you’ll get surprised at what has happened”, says a partner who used to be a member of Pactual top management. “He’s always been good at making money, but nobody expected to see him as an entrepreneur of such importance.” That transformation got accentuated in the last decade. The fixed income operator changed into a unique species in the Brazilian financial market, a billionaire that captivates client entrepreneurs as nobody else and skillfully circulates in the government. He made contact with key people in the PT (party of workers). First, Antonio Palocci. After that, Guido Mantega. “Giving suggestions and ideas to the government is a civic duty of an entrepreneur”, says Esteves. A suggestion here, an idea there, and he ended up as a partner of the federal government in PanAmericano.
DISNEYLAND
André Esteves’ transformation was made in the infernal mixture of cultures in Pactual. Created in 1983 by Luiz Cezar Fernandes, Paulo Guedes and André Jakurski, Pactual was a successful attempt to reproduce the meritocratic culture from Garantia, of Jorge Paulo Lemann — power and wealthy to the best; the boot to those not as good. In 1989, Esteves saw in a newspaper an ad of a bank looking for young people starting their careers. He scheduled an interview and was introduced to the model of Pactual. “For me, that was Disneyland”, he said. To test the endurance of the younger professionals, beginners like him were placed in the most miserable functions, working as slaves. Those who survived were adapted to the culture and could be transferred to profitable functions. Missing anniversaries to stay at the bank was the rule, something seen as a demonstration of commitment to the cause. The first employee to leave was applauded by the colleagues, an act whose impudent purpose was to cause embarrassment. The environment was extremely competitive. An episode is like a symbol of such environment, where nobody can be considered innocent. In 1999, founder Luiz Cezar Fernandes was knocked down by a group of younger partners that included Esteves. In what would be the final meeting, Fernandes demanded a proof that the money of his shares had been paid. A fax was soon presented: Fernandes read the document, went to the toilet and left the bank without signing anything. According to the partners who saw this episode, that fax that proved the share payment was as real as a 3-dollar bill. This is expected to be a place with bursting rivalry and destroyed friendships. Esteves has a high number of rivals among his former partners. Fernandes, in a famous interview that he took back later, said that his Esteves “would sell his mother to have power”. Other more recent partners also have something to say about that, especially regarding the treatment they received from Esteves when he bought Pactual again. One group is thinking of suing him, claiming that he hasn’t paid them the amount that today corresponds to 260 million dollars regarding the bank’s participation in the process that led to the IPO of BM&F. In 2006, a partner that felt betrayed by Esteves threatened to start a fight, but he was calmed down by others. Despite his history of fights, it is incontestable that the banker keeps attracting talents to his orbit. After all, he helped create many millionaires in all his career. Today, with the bank worth of 10 billion dollars, Esteves can change his 54 partners into very rich men, although none of them has a participation that reaches one third of the 30% that Esteves has in BTG Pactual. In a simple count, the equity of a partner with 1% of the shares is around 100 million dollars. His right arm, Marcelo Kalim, for instance, has a jet worth of 40 million dollars — a little simpler than 7X, that costs 50 million dollars, an amount that Esteves still has to receive.
IRONY
For those who know the history of Pactual, the current multiplication of millionaires involves a strong level of irony. In the 1990s, the ascension of Esteves to a position of power in the bank structure was possible only because the controllers of Pactual had a conflict of views. Luiz Cezar Fernandes wanted to take Pactual to retail banking transactions; Paulo Guedes and André Jakurski, the other two founders, were against that and ended up selling their shares. Fernandes, soon after that, was in disgrace because his investments in the acquisition of companies were disastrous. The companies were breaking down and he, in search of money to make up for the disaster, was forced to sell his shares to the generation of younger partners. Ten years later and here is the ironic point, Esteves seems to follow the steps of the bank founder. First, when purchasing a number of companies in a rush. Second, when entering firmly in retail with the purchase of PanAmericano. “In the 1990s, the society was not prepared for the investment in retail. I think this is an absolutely correct strategy”, said Fernandes to EXAME. Esteves sees differences when comparing the two moments. “In the past, the controller made investments with his own money, not the bank’s money”, he says. Hiring Galeazzi, a renowned manager, shows that Esteves doesn’t intend to let the companies without plan and order.
Even if he doesn’t make the same mistakes that caused the fall of Pactual founder, his current growth strategy involves some risks. First, the growing diversification of the bank causes a natural loss of focus. While competitors such as Credit Suisse and Itaú BBA are basically concerned about making money by supporting companies, BTG Pactual, with its strategy of acquisitions, has become a much more complex structure. “It’s already difficult to do what we do when we are 100% committed”, says the president of a foreign investment bank. “If André wastes time with other businesses, the competition will thank him.” Besides, the current business model of BTG Pactual generates conflicts of interest that may be difficult to be managed. After all, the bank today is not only the agent of big companies, but also its own competitor. Will a retail company hire BTG Pactual for an acquisition knowing that the bank owns a competitor, Casa & Vídeo? Will an average bank pay high commissions to Esteves for him to make the IPO knowing that he is the owner of PanAmericano? Finally, will a client’s private equity fund whose relevance has increased in the last years trust in BTG Pactual? Fortunately, for Esteves, entrepreneurs such as Edson Bueno, owner of Amil, a company of health plans, keep considering BTG Pactual as a supplier, and not as a potential competitor. Even after the bank’s investment in hospital chain D’Or, Bueno keeps hiring its services. “The areas are well separated”, says Bueno.
The growing rhythm of the bank to make its IPO will test this model to its limits. Esteves’ purpose is to increase profits, from currents 700 million dollars to around 1.3 billion by the end of this year. Capitalized with the funds, he has now conditions to continue the acquisitions of companies. In his favor, having investors such as GIC, the sovereign fund from Singapore, private equity JC Flowers and Canadian pension plan Ontario Teachers undeniably helps generate businesses — and will help also in the eventual attempt to make the IPO. From what Esteves shows, he’s thinking ahead. According to executives that know him very well, he dreams of being the greatest stockholder of Bradesco, the second largest private bank in Brazil. That could happen with the sale of BTG Pactual to Bradesco. Esteves denies that. But he’s unable to hide that, for him, such transaction makes a lot of sense. “People say that because the activities of Bradesco and BTG would complement each other, but no talk has been made in this sense”, says he. It may be true. But, in December, Esteves categorically stated that he had no interest in buying PanAmericano or entering the financial retail banking. Believe it or not.
EVEN CHINA WAS LEFT BEHIND
Why the Brazilian subsidiary of Kraft has become the fastest growing operation in that company worldwide
MARIANNA ARAGÃO
The workday of Marcos Grasso, born in São Paulo and president of the Brazilian subsidiary of Kraft, started with a special celebration on January 26, 2011. When he arrived at the office, he received a group of around 120 employees for a welcome breakfast in the new head office of the company, in the south part of São Paulo. That day, almost one year after American Kraft made the global purchase of English Cadbury, the employees of both subsidiaries in Brazil finally started to share the same place. Before that moment, the employees of Kraft worked in Curitiba, where the head office was located for ten years (the place now may be for support departments, such as human resources and technology). The employees of Cadbury worked in an office on Avenida Paulista. “Having a unified office in São Paulo was essential for our growth”, says Grasso. “We needed to be close to the largest suppliers, retailers and distributors.”
The physical change indicates a new phase of the local operation of this company, which is the second largest food manufacturer in the world. With estimated revenue of 6.3 billion reais, the Brazilian subsidiary of Kraft grew 37% in 2010, the highest percentage among the 170 countries where the company operates, including China and India. Part of this result corresponds to the incorporation of Cadbury, that presented the revenue of around 1 billion reais in the country. Another reason for such growth is the organic expansion of Kraft, which reached 15% in 2010, an extraordinary percentage considering the global growth of only 3.5%. As expected, the company’s headquarter in Northfield, near Chicago, is very happy with the result — and wants more.
To keep growing in this accelerated rhythm, Grasso’s team will start using the large distribution structure of Cadbury, which is much more comprehensive than that of Kraft. “Cadbury created a distribution system that is similar to that of Ambev and Souza Cruz”, says Rafael D’Andrea, marketing professor at Insper. With a portfolio basically comprised of candies and gums, items that are sold more at bars than at supermarkets, Cadbury was forced since the beginning to create a broad network of distributors. This way, even with an operation that corresponded to around 1/4 of the size of the former competitor’s operation, Cadbury created a distribution structure that reaches twice the number of points of sale. Today, chocolate Sonho de Valsa, of Kraft, for instance, is distributed to 280,000 points of sales. Brands such as Hall’s and Trident, of Cadbury, are distributed to 650,000 points of sales. “Until the end of this year, the main products of Kraft start to be distributed using the same structure”, says Oswaldo Nardinelli, commercial director at Kraft.
NEW PROJECTS
For this reason, all 3,000 sales employees of both companies have already started to work jointly. In Northeastern Brazil, the integration of teams has resulted in a 40% larger team, with 400 professionals. With a larger team, it was possible to dedicate staff to new projects, such as the distribution of a mini cooler to display Kraft chocolates — an initiative that started in September and has reached 30 local small supermarkets so far. The idea came from Cadbury in India, which distributes its chocolate bars to 1 million points of sale. “It’s a way to overcome the natural obstacles in a region where the high temperatures change the product characteristics”, says Nardinelli.
BUSINESS / consumption
Using the distribution structure of Cadbury to speed up business in emerging countries is one of the declared reasons of Kraft for having acquired the English competitor. In this context, the Brazilian subsidiary — the largest operation of both Kraft and Cadbury in emerging markets (today three times higher than the Chinese and Indian operations) — has become an essential piece. To a large extent, that explains the choice made by Grasso, president of South American division of Cadbury since 2007, to manage the new operation in February 2010. In that moment, the Brazilian subsidiary of Kraft was under the temporary control of Romeo Lacerda Neto, who was the biscuit department director, after American Mark Clouse had to leave, as he was promoted to global biscuit department director. (Today, Lacerda Neto manages the company in Portugal and Spain.) The same happened to Nardinelli, who was the president of Cadbury. “When the acquisition was announced, I had no idea of what function I’d have”, says Grasso. The answer came straight from the global president, Irene Rosenfeld, the second most powerful woman in the world, according to the list published by American magazine Fortune. “She called me and said that she would like to talk to me personally and explain the plans for the head office in Brazil”, says Grasso. Some days later, he went to London, where he had a meeting of almost 1 hour with Irene. He left already with the invitation of controlling the new operation.
This more comprehensive distribution may help intensify the sales of more recent launches of Kraft. Twenty-five new products were launched in 2010 (ten more than in 2009). Many of them are items for fast consumption, in smaller packs. For instance, biscuit Belvita, launched in October in individual packs, sold for 90 cents. “This type of launch is a trend not only because it is a cheaper product, but also for a behavioral question”, says André Torretta, managing partner of A Ponte, a consultancy company specialized in low income. “Food consumption has increased in buses or trains, while people are going to work.” To prepare for such sales increase, Kraft invested 100 million reais in a new plant in Vitória de Santo Antão, a city of 130,000 inhabitants around 50 kilometers from Recife. This plant, which will start operating in March, will initially produce chocolate and juice powder. The expectation of growth is so strong that, although the factory is not fully operating, the head office approved in November 2010 investments of 50 million dollars to expand it - the ideia is to start producing Trident gums as well. From now on, places such as Pernambuco, very far from Northfield, will increasingly catch the eyes of the executives from the headquarter.