Usiminas is back in the spotlight this Monday (29), in yet another day of declining prices for USIM5 shares on the Brazilian stock exchange.
Around 11:25 AM, the stocks were down 4.58% on B3, trading at R$ 6.04, ranking among the largest declines in the Ibovespa this morning. For the year, the steelmaker has already accumulated a depreciation of 32% on B3.
Following a weaker-than-expected report in the second quarter, the stock is now reacting to a new episode in the legal dispute with CSN (CSNA3).
According to a significant fact sent to CVM this morning, the court has decided that CSN must reduce its stake in the company from 12.9% to less than 5% of the share capital.
According to the company, the rival was supposed to sell the shares as per the Performance Commitment Term (TCD) established between CSN and Cade (Administrative Council for Economic Defense) in 2014.
However, according to Usiminas, CSN missed the deadline set by the court to sell the shares without complying with the court’s ruling. It is worth noting that the case is being heard under confidentiality.
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The Legal Battle of Usiminas (USIM5)
According to a report published in Folha de S. Paulo, the dispute in the Federal Court of Minas Gerais was presented by Usiminas (USIM5) against Cade, aiming to maintain the effects of the commitment term established in 2014.
The agreement provided for a five-year deadline for CSN to sell the USIM5 shares it held, reducing its position to less than 5%.
However, this deadline was not met and, in 2022 — three years after the expiration of the stipulated period —, Cade itself decided to change the determination.
The antitrust regulator decided that CSN could maintain its shareholding for an indefinite period, provided it did not use the shares to exercise political rights, such as voting in shareholder meetings.
However, according to the court’s ruling, the absence of a deadline from Cade made it vulnerable to competition. “Ten years have passed, and the obligation necessary for the reparation of anticompetitive practices has never been fulfilled,” said the prosecutor.
In the judge’s assessment, Cade also opened a window for re-discussion of the definitions regarding CSN and Usiminas, resulting in legal insecurity and violation of the guarantee of what had already been judged.
Last year, the court ordered that the first instance ruling be upheld, with a one-year deadline for CSN’s divestment from Usiminas. The period expired on June 29 of this year.
CSN stated that it respects the court’s decisions and that “it does not exercise its political or management rights regarding Usiminas.”
“There is no reason for any urgency in selling the shares. Also, the shares cannot be sold for a value significantly lower than the acquisition price,” it wrote to Folha.
Usiminas (USIM5) Stock Downgraded
In addition to the legal issue with CSN (CSNA3), Usiminas (USIM5) is also feeling the impact of a downgrade from a large American investment bank.
Bank of America (BofA) has downgraded its recommendation for the steelmaker’s stock from “neutral” to “underperform” — equivalent to sell — following results below expectations in the second quarter of 2024.
The analysts also cut the price target from R$ 9 to R$ 6, implying a potential decline of 5% compared to the last closing.
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According to the bank’s calculations, Usiminas (USIM5) stocks are currently trading at a multiple of 6.4 times the enterprise value to EBITDA (EV/EBITDA) for 2024, generating 7.1% in free cash flow (FCF).
For next year, analysts project a multiple of 4.1 times EV/EBITDA and 6.1% FCF yield (FCFY), although “improvement remains distant and uncertainties about execution persist.”
Furthermore, according to the analysts’ forecast, additional investment (capex) may be announced in 2025 to extend the lifespan of a mine in the mining division, which would pressure the FCF into negative territory.
*With information from Folha de S. Paulo.