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Papel Prensa S.A. and the Editora Abril

The lawsuit brought by the government of Argentina against the newsprint monopoly Papel Prensa S.A. — controlled by a partnership comprising the two leading national dailies, El Clárin and La Nación — is being primarily treated as a story about big government attempting to muzzle the press.

This strikes me as nonsensical.

The allegation that control of the company was got by illicit means in collusion with an illegitimate military government who coerced the legitimate shareholders involves a long and involved story of corporate restructurings that would make a fascinating case for any textbook on M&A and takeovers.

Setting aside allegations of a murder plot against the legitimate controller and whether the owners of El Clarín raised the kidnapped children of assassinated political prisoners — emotional issues, to be sure, as the entire nation waits breathlessly for the DNA results — this episode can be usefully approached as a straight business story.

A team of Argentines have produced an excellent chronology of the case, from 1973 down to the present day, on Spanish-language Wikipedia.

They have also helpfully reproduced the Argentine government’s complaint against the majority shareholders, whose representatives they seek to remove from the board of directors.  I reproduce it here:

The accounting and corporate restructuring angle is almost completely absent from accounts in the Brazilian press about the episode. One reason for this might be the involvement of the Editora Abril in the episode.

As a local historian noted recently, resistance by major media groups to a truth and reconcilation process, with the opening of the archives of the military dictatorships that ruled Brazil from 1964 to 1985, may well be explained by a reluctance to face facts suggesting that their oligopolies may not have emerged entirely from the innovation and marketing of a better mousetrap in a free-market environment.

In this post, I would like to organize my preliminary notes on this specific angle — the overlap between the history of Papel Prensa S.A. and Editorial Abril S.A.I.C.F.Y.

Editorial Abril of Argentina is a precursor to the present day Editora Abril S.A. of Brazil — founded in the 1940s as a distributor of Disney comics by César Civita, born in the Lower East Side of New York in 1905. .

Cue Nino Rota soundtrack.

One legal issue that could be problematic for the Argentine government’s case is the legitimacy of the holdings alleged to have been expropriated illegally from the Graiver family.

The deposition of a gentleman named Rafael IANOVER states that he acquired the shares of Civita and other shareholders as a testaferro — unacknowledged proxy — for David Gravier.

The strongest claim the current government makes may be the economic argument — that crooked dealings between an illegitimate government and major media groups may have resulted in material harm to shareholders, one of which was the E.N. — the Estado Nacional, or rather, the Government itself.

It looks to me like a straightforward breach of fiduciary duty case, leaving the gory details aside.

But let us try to outline the involvement of the Editorial Abril in the Papel Prensa case, according to the Argentine indictment — which, of course, might still be challenged on factual grounds.

There is a lot of historical fact-checking to be done before this whole story makes sense.

The project to found a national newsprint industry was embodied in Decree Law No. 18.312 of 1969. The idea was to make Argentina self-sufficient in this staple of the newspaper industry, fomenting the development of the national press.

The company was founded by Decree No. 6.956 of 1972, after two rounds of bidding on the contract to establish and build out a company producing from 200,000 to 340,000 tons of newsprint per year. I translate a little

César Alberto Civita, César Alberto Doretti and Luis Alberto Rey of “Editorial Abril S.A.I.C.F. Y.M.” bid on the project. This bidding process was nullified.

The Secretary of Trade was responsible for this process, an open international competition.

Only the Civita bid was considered valid as to form, though not as to conformity with the specifications.

So only the Civita group was offered the chance to improve its bid.

Is there evidence of a steering of the bid?

The government does not take an interest in this question in its papers, so far as I can see.

However, the National Executive Authority accepted a revised proposal by the same bidders under which Papel Presnsa S.A. (PPSA) was to be incorporate for the purpose of building the plant, under guarantees provided by the aforesaid group.

The founding shareholders of PPSA:

The “founding group” received Class A shares comprising 26%”of the paid in capital while the government received Class B shares comprising 25%.

Newsprint buyers received Class C shares (20%) and suppliers received Class E shares (19%).

A free float of 10% was offered to the public.

The Argentine government now claims that the concentration of voting power in the class A shares led to the use of fraudulent means to monopolize these shares — an alleged fraud which undermines the legitimacy of the successors to the “founding group.”

The Argentine government here helpfully offers a mini-textbook on the corporation law in effect at the time. Boring stuff.The gist of it seems to be that the original division of capital degenerated because of illegitimate dealings.

Okay, so now, between 1973 and 1976 — a brief period of return to democratic normalcy — a series of transactions brought new partners into the “founding group,” the net result of which was a transfer of de facto control from the Civita-Abril Group to the so-called “Graiver Group.”

Abril’s reasons for bailing on the project are not detailed, and the legitimacy of its exit is not challenged.  It would be interesting, if academic, to try to work out how well the group did on this short-term financial investment.

The chart above shows the progressive dilution of the shares owned by the Founding Group.

By 1976, there were 21 million shares outstanding, following a series of capital raises, with Mr. IANOVER owning a bare majority on behalf of David Graiver after buying 500,000 shares from the Civita Group on December 27, 1973, according to his deposition.

Decree No. 4.561 of 1973 provided for the restructuring of the company and produced a contractual amendment agreed to by the Civita Pioneeers.

They agreed to cede their right to elect a majority of the board to the Ministry of Industry and Mining.

That is to say, the company was nominally nationalized.

The plot now thickens to the consistency of a pool of coagulating blood.

Essentially, the legitimacy of the Clarín-La Nación group as a successor to the Graiver Group is questioned.

The Graiver shares were allegedly expropriated — by the military triumvirate installed in 1976 — under extreme duress from the heirs of David Graiver, who died in an airplane crash in Mexico that everyone refers to as “mysterious.”

Here, things get crazy.

From a business point of view, the interesting allegation is that no accounting or audit documents exist from the date of Grainer’s death in December 1976 until April 1977.

In May 1977, the Videla Triumvriate intervened in the company.

The group of newspapers and others who ended up with the Graiver stake was incorporated in December 1976 as FAPEL S.A. Its founding shareholders:

The government alleges shares sold by the Graiver heirs to FAPEL S.A. were undervalued by a factor of ten in relation to their market value.

After FAPEL S.A. bought the controlling stake, comprising shares of various classes, it sold this stake to La Naćion, El Clarín, and La Razón, the latter jointly controlled by the first two.

FAPEL S.A. was then disbanded.

Doubts about the deal at the time led all three papers to run front-page editorials defending the deal.

I will try to find the text of that editorial.

The General Shareholders Assembly required under the by-laws to effect the transfer of Class A and B shares was a tumultuous affair.

The Graiver heirs were later disappeared by the military dictatorship, and a legend circulated about their supposed involvement with the Montonero guerrilla movement. This may well have been disinformation.

It is hard to assert standing to sue when you no longer officially exist.

And so it goes.

I have a lot of study left to do on the issue, but I think the boring details of Argentine government’s account of events goes a long way to explaining the viciously biased reporting by the Brazilian press on the subject.

Most notable, I thought, was the complete lack of any interest in the aspects of the case calling for the special talents of a financial markets specialist. Not even in the specialized trade press, as far as I can find.

The Civita clan is reticent about its origins, for example, for reasons I will explain in a second.

One of Brazil’s most prolific op-ed writers on International Relations and Development issues is Eduardo Jose Viola — the Argentine-born naturalized son of Roberto Eduardo Viola of the second Triumvirate of Argentine Generalíssimos.

He has published dozens of articles in the national press, especially in O Globo, Estado de S. Paulo, Folha de São Paulo, Valor and Correio Brasiliense. He is a regular panelist on the Globo TV program Globo News Painel. Interviewed dozens of times by radio networks such as  CBN [Globo], Eldorado (Estado de S. Paulo), Bandnews, Nacional, and BBC International, along with TV interviews on Globonews, Globo, TV Senado, TV Câmara, Cultura a Bandeirantes.

The Portuguese-language Wikipedia article — a half-hearted partial plagiarism by Google Translator of the introductory matter to the Spanish-language version — cites as its only sources Globo, the Estado de S. Paulo, the Folha, and an Argentine media lobbying group.

As to the Civitas, there is an issue with the citizenship of old César and his sons.

Born in the U.S.A., César presumably enjoyed American citizenship, making his Argentine-born sons U.S. citizens as well. Biographers make a point of minimizing or denying this alleged fact. His obituary in La Nación, for example:

Media mogul César Civita, who founded Abril, died in Buenos Aires at age 99. He was born on September 4, 1905, in New York, but had Italian citizenship, having lived in that country until 1938. He arrived in Argentina in 1941 as a representative of Walt Disney.

In any event, there are allegations that the founder of Editora Abril was a foreign national of some sort or other. You will not find many detailed and objective accounts of this allegation in circulation, however.

The importance of this fact is that Brazilian law limited, and still limits, media ownership to native Brazilians and naturalized citizens with 10 years of citizenship.

In theory, the legality of the Abril Group would undermined by the truth of this allegation — which it quite understandably does not want coming back to haunt it.