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The ex-president’s 2017 bribery conviction is thrown out after Supreme Court rules judge in that case was biased

SÃO PAULO—Brazil’s Supreme Court ruled that the judge who convicted former President Luiz Inácio Lula da Silva of corruption was biased, strengthening the leftist leader’s likely election bid next year.

In a ruling late Tuesday, the court concluded that Sergio Moro, the lower-court judge who oversaw the country’s Car Wash corruption trials, didn’t act impartially in the case amid accusations he coached prosecutors. The decision throws out Mr. da Silva’s 2017 conviction over allegations he received a beachfront apartment as a bribe—a conviction that later landed him in jail and barred him from running in the last presidential elections.

After being released from prison in 2019, Mr. da Silva has emerged as the country’s main opposition leader and strongest challenger to President Jair Bolsonaro, who is facing growing criticism over his handling of the Covid-19 pandemic. Brazil’s death toll from the virus reached a daily record high of 3,251 Tuesday as hospitals around the country run short of beds and face deficits of oxygen and other supplies.

The Supreme Court’s ruling is “practically checkmate” for the country’s Car Wash corruption investigation, a sprawling probe that was launched in 2014 over inflated contracts at oil company Petróleo Brasileiro SA, said Vera Chemim, a São Paulo-based constitutional lawyer. “This almost certainly means [Mr. da Silva] will be eligible to run in the next elections in 2022,” she said.

Mr. da Silva’s conviction has divided Latin America’s biggest country since 2017, with supporters of the charismatic former steelworker arguing that he was a victim of political persecution. After helping to lead the Car Wash probes, Mr. Moro accepted a job as Mr. Bolsonaro’s justice minister though he later quit. The current president is Mr. da Silva’s rival, and some political scientists say Mr. Bolsonaro never would have won the presidency if the leftist leader had been allowed to run in 2018.

Mr. Moro later came under scrutiny after leaked text messages appeared to show him coordinating with prosecutors on the case. The messages, published by the Intercept website in Brazil in 2019, showed him helping prosecutors find evidence to convict Mr. da Silva by passing on the contacts of a witness. Mr. Moro didn’t deny the authenticity of the messages but has argued they show no wrongdoing under Brazilian law. He didn’t respond to requests for comment Tuesday.

Mr. Moro, who is still considered by many Brazilians to be a national hero for his efforts to stamp out corruption, quit Mr. Bolsonaro’s administration last year after accusing the president of political interference in federal criminal investigations.

The Supreme Court earlier this month also annulled the criminal convictions against Mr. da Silva on technical grounds, ruling that the case should have been tried in a different city, but that decision is subject to appeal.

When Mr. da Silva was convicted in 2017, he was sentenced to almost a decade in jail but served only a year and seven months after a local judge granted his request to appeal the conviction out of prison.

Bluebell Capital runs just €70m in assets but has big targets in its sights

On January 18, a letter written by a little-known activist investor calling for the replacement of Danone chief Emmanuel Faber was leaked to a French magazine. It proved to be a call to arms among the French consumer goods company’s biggest shareholders, who began contacting London-based Bluebell Capital to understand more about its demands.

“If you take the largest investors in the shareholder register, we’ve been called by everyone,” said Bluebell co-founder Marco Taricco in an interview. But he insisted the firm was not the source of the leak to Challenges: “The vast majority was highly critical and dissatisfied with Mr Faber’s performance”.

The episode turned the spotlight on Bluebell, a hedge fund boutique that is fewer than two years old and runs just €70m in assets. The group owns less than €20m of Danone, which has a market cap of €41bn, and has a fraction of the firepower of much larger and more prominent US activists such as $40bn group Elliott Management and $15.5bn Third Point.

Nevertheless, Bluebell quickly became the public face of a campaign at Danone that eventually led to Faber’s ousting last week.

The activist manager, which was set up by former Goldman Sachs bankers, had verbalised a growing and multiyear shareholder frustration over poor performance at the maker of yoghurt and Evian water under its purpose-driven leader.

It marked the latest example of how Taricco and co-founder Giuseppe Bivona have taken on big companies such as Italian bank Monte dei Paschi di Siena, asset manager GAM, and Belgian chemicals company Solvay, drumming up support for its campaigns from fellow shareholders along the way.

In the case of Danone, it reflected the view of many other

shareholders when it called to replace Faber and split the roles of

chair and CEO. Bluebell’s campaign was soon followed by a separate push by another disgruntled shareholder — the US-based fund Artisan Partners.

Amid these revolts, initially Danone pushed to look for a new CEO but keep Faber as chair. This was too little to satisfy the activists but enough to reassure Bluebell the balance was shifting in its favour. Two weeks later Faber was out completely.

Faber’s ousting was reminiscent of the years before the financial crisis when activists with tiny stakes could create fear within company managements. Bluebell’s rivals see the part it played in it as a key victory.

“They were particularly effective in building a consensus among fellow shareholders who may have been nervous” of being seen to criticise Faber’s ethical credentials, said one veteran hedge fund activist.

The successful campaign at Danone, which over the past decade has found itself in the crosshairs of other activists such as Nelson Peltz and Corvex Capital, comes after a tricky period for the strategy. Many activists have been wary of being seen to attack companies already struggling from the effects of the coronavirus pandemic.

There are signs of an uptick in activity after some funds used last year’s sell-off as an opportunity to increase stakes in target companies. With equity markets having rebounded so strongly over the past year, activists are again putting pressure on companies, particularly over how to use cash reserves built up during the pandemic.

There were 57 new campaigns launched globally in the fourth quarter, up 128 per cent on the third quarter, according to Lazard. The “Covid pause is over” for activists, the investment bank said in its latest report.

Making its voice heard

Before it was a hedge fund, Bluebell began life as an advisory firm. It was set up in 2014, as Bluebell Partners, by Taricco and Bivona, who met at Columbia Business School in New York decades earlier.

In this previous incarnation, the duo sold stock ideas to big-name activists such as Paul Singer’s Elliott Management and Jana Partners. These included working with Elliott in Italian transportation company Ansaldo STS and with Jana at luxury retailer Tiffany. The pair would back the ideas with their own money alongside their larger partner’s investment, whilst also negotiating a profit-sharing arrangement.

“We have strong relationships with former clients like Elliott, Jana Partners and Third Point,” said Taricco. “What matters is the quality of the suggestion you put forward. Our strategy lends itself well to gathering investor support.”

In 2019 they set up Bluebell Capital Partners with Francesco Trapani, the former CEO of Italian jeweller Bulgari, and launched the hedge fund in November of that year.

Today, as Bluebell Capital, the firm’s €70m asset base mainly comprises the founders’ own money and that of friends and family. It has continued its strategy of teaming up with much bigger players to make its voice heard in activist situations.

This was demonstrated in Bluebell Partners’ first campaign, at Italian bank Monte dei Paschi di Siena. It argued that the troubled lender, which had received a state bailout and become a major political issue in Italy, was hiding derivative transactions in its financial statements.

Working with more established investment firms York Capital and Alken, the campaign attracted high-profile support from Italy’s 5-Star movement. In 2019, 13 former bankers from Monte dei Paschi, Deutsche Bank and Nomura were sentenced to jail for helping the bank hide hundreds of millions of euros of losses using derivatives, and last year former chair Alessandro Profumo was also sentenced to jail.

In its hedge fund guise, Bluebell, which was given its name by Taricco’s daughter, runs a highly concentrated portfolio, currently just 11 positions. It focuses on medium and large companies, rather than small-caps where there is more chance a firm will have a dominant — and potentially less amenable — shareholder.

In 2020, Bluebell Capital’s first full year, the fund gained 5.7 per cent, according to investors. The average hedge fund was up 11.8 per cent in the same period, according to Hedge Fund Research, while the Stoxx Europe 600 was down 1.4 per cent. 

While most of its investments and interactions are behind the scenes, Bluebell has also recently built a stake of undisclosed size in UniCredit, where it opposes the appointment of chairman-designate Pier Carlo Padoan, Italy’s former finance minister. Bluebell argues that Padoan is not independent because of his role in the bailout of Monte dei Paschi, a possible takeover target for UniCredit. 

“We’re firmly opposed to this acquisition, there’s a long list of issues” at Monte dei Paschi, said Taricco. “It’s a total disaster.”

Another target, Solvay, reflects Bluebell’s commitment to undertake one campaign a year at a company where it buys one share and then advocates for better environmental, social and governance behaviour.

Bluebell still sometimes looks to work with bigger funds, as in a private equity co-investment, taking a fee for selling the activism idea.

Taricco said his firm prefers to take a low-profile, constructive approach with companies, “but if it’s made public then we don’t shy away from being vocal”.

Danone’s Faber was one of the most vocal champions in global business for ESG and purpose-driven capitalism, which is becoming an increasing focus of investors.

Taricco said that while he supported Faber’s strong environmental and social focus, the issue was governance — and financial performance.

“We never criticised [the E and S], how can we criticise these things? But it can’t come at the expense of shareholder returns. The first duty of a public company is to remunerate shareholders.”

Taricco added that he has rarely found companies to be defensive when ideas are presented to them. Even when that means removing an executive, the move is always driven by financial analysis. “There’s never anything personal in what we do.”

‘Muscular’ Britain brings in Mubadala

Since the UK voted to exit the EU, its largest trading partner, one particular phrase has been bandied around (unironically): Britain is open for business. 

As part of the pro-Brexit camp’s strategy to convince everyone that Britain is much better off out of the bloc, Prime Minister Boris Johnson has been trying to attract foreign investment, setting up a new government unit called the Office for Investment for that very purpose. 

Its first deal is with Abu Dhabi. 

Mubadala Investment Company, the UAE-based sovereign investment fund, has agreed to invest up to £5bn in the UK, including an £800m allocation to life sciences. It will invest alongside a £200m British government fund and will also look at sectors such as clean energy, tech and infrastructure.

Khaldoon Al Mubarak, Mubadala’s chief executive, said its investments would be “a sizeable number, appropriate for these sectors in order for us to make the right scale and returns”.

DD has told you about how large sovereign investment funds in the Emirates have been busy diversifying their portfolios away from oil, so it’s no surprise that Mubadala has set its sights on opportunities in the UK. 

The $232bn Abu Dhabi fund “only deals in big numbers” according to officials. It’s a potential rival to Blackstone, which said last year it was planning to use money from a $14bn Saudi-backed infrastructure fund to invest in the UK, after a US rebuilding drive that was originally intended to receive much of the cash got off to a slow start. 

Gerry Grimstone, the UK’s investment minister, said the “sovereign investment partnership” was part of a “much more muscular and entrepreneurial approach to attracting investment.” 

He told the FT’s Andrew England and George Parker he hoped it would be a “catalyst” to attract the world’s best venture capital funds to the UK’s life sciences industry.

According to Grimstone, the UK’s problem in the past has been a lack of venture capital money floating around. That’s news to us. 

It’s also left us wondering why the UK can find £37bn for a coronavirus test-and-trace programme that has “failed to deliver [its] central promise” of averting another lockdown, according to a group of lawmakers — but looks abroad for investment in some of its most promising companies. 

3G and Kraft Heinz switch up the recipe

Four years ago, Kraft Heinz shocked the market with an audacious and ultimately unsuccessful takeover bid for rival Unilever. Today, it’s overhauling operations from within instead. 

There has been a “big change in direction”, chief executive Miguel Patricio told DD’s James Fontanella-Khan and the FT’s Judith Evans. Crucially, he says, the company’s key investor, the Brazilian-US group 3G Capital — which manages the money of its founding partners and their high-net worth friends including Roger Federer and Colombia’s Santo Domingo family — is on board. 

New York-based 3G is better known for big acquisitions followed by ruthless cost-cutting to boost margins, having built its reputation with the assembly of the world’s largest brewer Anheuser-Busch InBev and Burger King owner Restaurant Brands International. 

This time, however, 3G plans to reinvigorate old Kraft Heinz brands and develop more “natural” and sustainable products in a bid to attract a generation of consumers that have flocked to healthier and more climate-conscious alternatives such as Blackstone-backed Oatly and Los Angeles-based Beyond Meat. 

The “most growth and value” will come from “putting the consumer at the heart of everything we do,” said João Castro-Neves, a partner at 3G and board member at the food company. 

“We don’t rule out transformational deals, but they are the culmination of many different variables converging at once.”

It’s a tall order for a company about which Credit Suisse analysts wrote in 2018: “Organic growth is not Kraft Heinz’ expertise.”

Kraft Heinz had a miserable time in the years after its foiled $143bn Unilever takeover attempt in 2017, including a $15.4bn impairment charge, a dividend cut and an accounting probe by the US Securities and Exchange Commission.

Warren Buffett, who bought Kraft with 3G in 2015 to merge with Heinz, stepped down from its board in 2018.

3G brought in Patricio, a veteran at AB InBev, the following year. He still sticks to the investment group’s zero-based budgeting approach where every business expense has to be justified afresh in every accounting period, but he is also spending more on marketing and research and development. 

It has sold parts of its cheese as well as its peanut brands, which helped raise $6.6bn to help pay down a debt burden that was about $31bn when Patricio took over. But part of that money will also be invested to expand the business.

There is some evidence that it is working. Sales rose 6 per cent for Kraft Heinz in 2020, compared with a 2.2 per cent drop a year earlier; the debt burden is at its lowest level since the merger; and employee turnover — a huge problem in the past — has come down.

The pandemic has helped, providing Kraft Heinz with an unexpected boost as consumers in lockdown have turned to nostalgic pantry staples including its ubiquitous mac and cheese. 

But the turnround is far from over, and Kraft Heinz’s share price is still down more than half since 3G and Buffett’s Berkshire Hathaway engineered the merger in 2015.

Catch up on the story here. Meanwhile, it’s worth remembering that 3G itself, which is sitting on about $10bn of funds, still needs a mega-deal. 

Advent and Walmart agree to sell Grupo BIG, Brazil’s third-largest food retailer

European grocery group Carrefour has unveiled the €1.1bn acquisition of a competitor in Brazil, Grupo BIG, in a move aimed at growth in its second-biggest country by sales after its home market of France.

The acquisition announced on Wednesday is the largest undertaken by chief executive Alexandre Bompard since he took the helm in 2017. It also comes two months after Couche-Tard, a Canadian convenience store chain, made a takeover bid worth €16.2bn for Carrefour that was thwarted by French government opposition.

If approved by competition regulators, the deal would combine Carrefour Brazil, the number one local player in food retail, with Grupo BIG, the number three. The entity would have sales of about R$100bn (€15.3bn) and would operate 876 stores with 137,00 employees.

Grupo BIG is owned by private equity firm Advent International, which bought an 80 per cent stake in the company from US retailer Walmart in 2018.

Carrefour’s Brazilian unit will purchase Grupo BIG with 70 per cent in cash and 30 per cent in new shares to be issued. Once the deal is completed in 2022, Carrefour Brazil will own 67.7 per cent of the new group, while Advent and Walmart will jointly own 5.6 per cent.

Matthieu Malige, Carrefour chief financial officer, said the acquisition was in keeping with its strategy of completing small to medium-sized deals aimed at growth in priority markets, as well as in fast-growing areas such as ecommerce.

“We will reinforce our leadership in Brazil with this acquisition,” said Malige in an interview. “We want to be very selective on our bolt-on acquisition strategy focusing on our main countries and in-store formats that have good potential synergies.”

The French group said it expected to generate cost savings worth R$1.7bn, or €260m, on an annual basis by the third year after the acquisition. The synergies will come from switching over stores to the Carrefour brand and local hypermarket brand Atacadão, as well as from expanding Carrefour’s financial services such as credit cards, and wringing out costs from logistics and overheads.

Carrefour is France’s largest grocery chain, with about 2,000 supermarkets and more than 700 large-format hypermarkets in Europe. Bompard has been on a cost-cutting drive in recent years, allowing him to make significant investments in developing ecommerce, which has boomed during the Covid-19 pandemic.

Its shares have largely recovered from the sharp sell-off that started in early 2020 when the pandemic rocked markets. They have risen 5 per cent this year, lagging behind a 7.5 per cent rise for France’s blue-chip CAC 40 index, to close at €14.75 per share on Tuesday.