C&A-Holding to List its Subsidiary in Brazil on the Stock Exchange

RIO DE JANEIRO, BRAZIL – In Brazil, the Brenninkmeijer clan, known for its discretion, is planning an IPO for its C&A subsidiary. If possible, this would be carried out below the public radar: since February this year, the Brazilian stock exchange regulatory agency CVM [“Comissão de Valores Mobiliários”, equivalent to the U.S. SEC] has legally created the option for a “confidential IPO”.

However, it appears that CVM has not yet conclusively determined whether the confidentiality requirement would apply to the IPO itself or only to the stock market launch document, which should only be accessible to insiders.

In any event, at the end of August, the CVM published a twelve-page document on the planned amendment to the legal status of the Brazilian C&A subsidiary, which is controlled by Cofra Holding.

The Brenninkmeijer family has pooled its interests in C&A and other companies within the holding company, which is headquartered in Zug, Switzerland. The IPO is, in fact, unheard-of for this discreet family. Since the foundation of C&A in 1841 in Sneek, the Netherlands, the family has had control over the textile chain. It was inconceivable that outside investors would be allowed to participate.

Indiscretion or communication mistakes with the regulatory agency could now disrupt the owner all the more. When a reporter from Brazilian business newspaper Valor Econômico asked the CVM for more details on the planned IPO, the CVM removed the document from its website.

Secret IPO is now a major issue

At the request of German businesspaper WirtschaftsWoche, the Brazilian SEC stated that a confidential IPO had been introduced in order to prevent companies from being disadvantaged if ‘the market is not conducive to an IPO or the company is forced to abandon its launch’. This instrument also exists in other jurisdictions, such as the United States.

Carlos Rebello, the CVM’s director, says that this option was specifically designed for companies that want to go public but are not sure whether it will work. They are expected to be less exposed to market fluctuations, which can have a negative impact on the bidding process and thus impact both the company and its shareholders.

By keeping this secret, the family has now achieved the exact opposite of its intention: in the financial circles of São Paulo, going public is now the talk of the day. According to the brochure, the group, which is otherwise cautious with its financial figures, generated a profit of R$777 million (US$194 million) in the first half of 2019 compared with losses of R$30.5 million in the previous year, according to Valor Econômico.

Measured at the current exchange rate, this is approximately €173 million. Half-year sales (equivalent to €512 million) have increased by three percent over the previous year.

However, the catch is that the firm’s outstanding debt on June 30th this year roughly corresponds to its turnover. Therefore, a capital increase of R$ 2 billion, i.e. approximately €445 million, is planned for the IPO. The group intends to use 90 percent of this capital to “settle creditor debts early” and only the remaining ten percent will be used to expand its digital platform in Brazil.

US investment bank Morgan Stanley is to coordinate the IPO, and another five banks with a strong presence in Brazil are also taking part.

C&A is a major player in Brazil

C&A is the second largest fashion chain in Brazil, mainly featuring youthful fashion, and is known for its advertising with Brazilian supermodel Gisele Bündchen. C&A holds around five percent of the market in the highly fragmented textile retail sector. Today’s 282 shops are virtually all located in shopping malls.

Last year, the owners are said to have been on the lookout for financial partners or buyers in Brazil. After that, the private equity fund and the investment branch of Banco Itaú were involved in the negotiations, but these did not thrive, as Valor Econômico has established.