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SÃO PAULO – After negotiations that lasted six months, Embraer (EMBR3) announced Thursday morning (5) agreement with Boeing. Under the agreement, the two companies established the premise of the business combination in the commercial aviation sector, while the defense and security sectors and aircraft of the 39, cases were excluded from the agreement. They said, however, that they would create another joint venture for defense, but did not specify the terms of the partnership.
However, the long-awaited agreement was not well received by the market, which saw its shares close down 14.29%, to R $ 23.10 in this session, or a loss of R $ 2.85 billion in market value; at the bottom of the day, assets decreased by 16%. Negotiated volume was also very important at R $ 531 million, compared to an average of R $ 89.32 million in the last 21 trading sessions.
But what led to such a brutal decline in roles? There are a few reasons for this, ranging from the underestimated valuation to the company's business, investors pocketing recent profits amid expectations with the agreement and still the many questions that the market has on the transaction.
The evaluation of Embraer's commercial aviation segment was weaker than expected – but the value still represents a potential appreciation relative to the current price of the assets of the airline. Company, according to BTG Pactual.
The new commercial aviation sector is 4.75 billion US dollars and the operation will include the creation of a joint venture in which Embraer will own 20% and Boeing 80%, which will develop from now on the commercial aviation sector. developed by the Brazilian aircraft manufacturer. Thus, through the agreement, Boeing proposes to pay US $ 3.8 billion to Embraer; At this point, analysts always point out that it is necessary to check what are the tax implications and how the payment will occur. According to BTG, most of the net amount should be distributed as a special dividend to the shareholders of Embraer.
"The deal is close to the Embraer market capitalization of $ 4.8 billion yesterday, implying a lower valuation to the market for other segments of Embraer, such as Executive Aviation and Defense, "writes Safra analyst Lucas Marquiori
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However, even with values considered dumped, as pointed out Karel Luketic, chief analyst of XP Investimentos, the case has been positive. As the assets had already risen by almost 15% over the last week compared to the news speculating on this transaction, the newspaper ended up making the usual move "on the rumor, falling into the fact". It should be noted that, in the year, EMBR3 shares accumulate gains of 16%.
In addition, there was speculation that an offer could be made on top of that. "But reading is structurally positive for Embraer," says Luketic.
Embraer and Boeing Announce $ 4.75 Billion Joint Venture Agreement
A Paper Exposure Manager also points out that slowing down this session could be an opportunity to buy , also evaluating that there were many investors positioned only for the event. That is, when the case comes out, the investor also leaves the paper.
"[Com o acordo] Boeing obtains access to Embraer's experienced engineering team and equipment manufacturing capability."
But looking at the expected synergies, the prospect of a "win-win" agreement. In addition, Embraer's future growth in larger aircraft was limited by the aggressive competitive response of Boeing and Airbus, which limited opportunities.
It should be noted that after the Airbus purchase of part of Bombardier in 2017, a further consolidation in the sector – this time by the Boeing initiative – was only a matter of time. With the transaction completed, Boeing will take control of the most profitable division. On one side, there are still concerns about remaining operations, like the executive and the defense (segments with smaller and less predictable margins), on the other hand, that it does not matter. was the exit found for Embraer not to lose the conditions to follow in the market. This concern, moreover, began to guide the recommendation to sell shares of the company by some banks since last year, in the context of increased competition and profitability . With Embraer winning Boeing as a partner, the Brazilian projections have improved.
Thus, Embraer falls into the fact after rising in the rumor – but the outlook is positive for the company. It is worth mentioning that the Embraer shares are in InfoMoney Portfolio and analyst Thiago Salomão was live on IMTV to detail the recommendations for the July portfolio. See more by clicking here.
More details on the agreement
The joint venture between Embraer and Boeing, announced as a non-binding agreement, is expected to be finalized by the end of the year 2019. That's what companies expect from a joint statement pointing out that approvals will be on schedule, completion will occur between 12 and 18 months after the implementation of the definitive agreements.
After the final agreements, the partnership will be subject to the approval of regulatory authorities and shareholders, including the Brazilian government which holds a special share (Golden share). Boeing will have operational control and management of the new company formed with Embraer in the commercial aviation segment.
The partnership is expected to be accounted for in earnings per share by Boeing in early 2020 and is expected to generate annual cost synergies of approximately $ 150 million (pre-tax) by the third year. The transaction will have no impact on Boeing's and Embraer's financial projections for 2018, as well as on the capital deployment strategy and on Boeing's commitment to return approximately 100% of the cash flows. available to shareholders. "
Boeing believes that the new company will become one of the centers of excellence for the development of designs, manufacturing and maintenance of commercial passenger aircraft, and that both will be able to To offer a complete and complementary range of passenger aircraft of 70 years and over, 450 seats, as well as cargo aircraft.The statement reminds us that there is more than 20 years of cooperation between Boeing and Embraer
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