Americanas S.A . ( ( BTOOY ) ) is one of the largest retailers in Brazil, where it operates a digital e-commerce platform selling products in more than 40 categories. Americanas also has a physical presence with brick-and-mortar stores.
Currently, the company has a market cap of $151 million (R$776 million) and trades on the Brazilian stock exchange under the ticker BVMF: (AMER3.SA).
Americanas made headlines around the world when it went into receivership (Chapter 15) after an audit revealed a huge hole in the company's finances. Americanas said it had R$43 billion ($8.3 billion) in debt, 16,000 creditors, and about $155 million in cash — far less than the R$8.6 billion ($1.6 billion) it stated in its last quarterly report.
The Brazilian retailer reported that “inconsistencies” were identified in accounting entries taken from suppliers' accounts in previous years, including 2022. This loss was estimated at $3.9 billion and is related to "forfeiting" — a retail industry practice in which a company borrows money from the bank to buy from suppliers.
However, forfeiting had not been correctly reported in the company's balance sheet. Instead of this debt being linked to financial institutions, it was linked to the suppliers — leading to a huge distortion of the company's financial picture.
The news of the leak took the market by surprise, and Americanas shares have plummeted more than 90%. CEO Sergio Rial, who had assumed the role only at the beginning of January, stepped down immediately, further undermining market expectations regarding Americanas shares.
Who Are the Biggest Losers?
Before the stock's crash, many financial firms in the Brazilian market had a price target on Americanas above R$30 ($5.84) per share. And 10 of the 15 analysts covering the stock had assigned it an "outperform" rating.
Americanas is currently trading below R$1 ($0.17).
Besides the minority shareholders who took a 90% hit, the biggest losses were felt by Americanas' biggest shareholders: the three Brazilian billionaire founders of 3G Capital, who own 30% of the company — Marcel Herrmann Telles, Carlos Alberto Sicupira, and Jorge Paulo Lemann. The last two are also members of the company's board.
Americanas said in a statement that, in order to keep the business running, the majority shareholder group will inject R$6 billion ($1.17 billion) to keep the company's liquidity up to date and continue operations. However, creditors report that about R$10 billion ($1.95 billion) would be needed.
Also, skeptical of Americanas' ability to recover, two of the retailer's largest minority shareholders — the Capital Group and pension fund Teachers Insurance and Annuity Association of America (TIAA) — dumped their positions.
BlackRock ( BLK ) - Get Free Report , which owns about 5% of Americanas, is reportedly concerned about the situation, according to internal sources. But it has not yet taken any action with its shares.
A Grotesque Mistake or a Blatant Fraud?
The case shocked the markets due to Americanas' lack of transparency about its situation. Experts have pointed out that it is necessary to determine who was responsible for the inconsistencies.
Not only the company's executives, but also PricewaterhouseCoopers (PwC), which audited and approved the company's previous balance sheets, could be at fault.
Even so, it is still too early to determine whether the problems in Americanas' balance sheet were due to human error or some kind of fraud.
Brazil's Securities Commission, which serves as a stock market watchdog, has opened five investigations into Americanas and one into PwC.
The Bottom Line
What is most shocking about this story isn't the fact that Americanas' balance sheet was missing about $8 billion, but that the company was making its assets appear to be valued $8 billion more than they were worth.
And all this happened under the nose of the auditing firm, PwC.
Americanas used its overvalued assets as collateral for loans, and it painted the picture that it had more than $1 billion in cash. Yet the company really owned only about 10% of that amount.
With shares plummeting 91%, the company's market cap fell from about $1.95 billion to $776 million. Americanas now has negative equity and will inevitably need a capital injection to stay afloat.
In principle, the company will not necessarily go bankrupt immediately because it still has operations running and its debt is with the bank, not its suppliers. So in theory, Americanas will still be able to meet its obligations if it has the time and the necessary capital injection to do so.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)
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