BESC’s Acquisition

On September 30, 2008, the Shareholders’ Meetings will be held at BB, BESC and BESCRI to resolve on the mergers. This is the day on which BESC and BESCRI will be extinguished. Operation Besc will operate in parallel with operation BB until all systems and processes are ready for the integration of the two operations. After the necessary adjustments in the systems, infrastructure of the agencies, equipments and the training and the qualification of the people, we will have a unique operation in SC, maintaining the BESC brand, according to a commitment signed with the State of SC.

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The forecast is that this period is 180 days.

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If the merger of BB and BESC is approved, BB will pay the shareholders of the two companies, R $ 685 million (BESC – R $ 411 million and BESCRI – R $ 274 million), through the issuance of 23,074,306 registered common shares (BBAS3).

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The amount of R $ 685 million was established based on the evaluation of the economic values ​​determined by the methodology of discounted cash flow, included in the economic-financial appraisal reports. The amount calculated for BESC was R $ 411 million and that of BESCRI was R $ 274 million. In both cases, the discount rate used was 8.67% pa

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The criteria for evaluating companies are in accordance with the law and good market practices, and the amounts established are advantageous for both parties, without prejudice to the minority shareholders of both BB and BESC.

The use of the market value to evaluate BB and the economic value for evaluation of BESC / BESCRI is the most viable way to arrive at a fair price for the business. This methodology is justified by the fact that BESC’s shares do not have sufficient liquidity to support a good market valuation. As an example, with the inputs we have, this exchange ratio, at the market value between BB and BESC, would be approximately 1 ON BB share for about 2 BESC shares.

Lastly, since it is a merger with exchange of shares, this transaction does not present any goodwill.

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In compliance with art. 224 of Law 6404/76, to establish the share substitution relationship, BB was evaluated by the weighted average price of its shares in the securities market (last 90 calendar days of 2007), and BESC and BESCRI for the evaluation of the economic-financial value, calculated using the discounted cash flow method, using as base date 12/31/2007.

In compliance with art. 264 of Law 6404/76, the Bank of Brazil’s valuation was also carried out based on the discounted cash flow method, in order to verify if the criterion freely chosen by the parties, based on art. 224 of Law 6,404 / 76, would be beneficial to the minority shareholders of BESC and BESCRI. The evaluation concluded that, for economic value, BESCRI shareholders would receive 1 share for each 2,403,275,850 shares, while BESC shareholders, of the three classes of shares, would receive 1 share for each 18.31304592 shares.

The adoption of this second valuation criterion is intended to serve as an alternative parameter to the redemption value when the share replacement ratio freely chosen by the parties based on art. 224 of Law 6,404 / 76, is less advantageous to the minority shareholders of BESC and BESCRI.

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Company Evaluated Company Evaluator Document

Banco do Brasil PricewaterhouseCoopers Economic and financial appraisal report and market value

International Services Ltda.

and PricewaterhouseCoopers

Corporate Finance & Recovery Ltda

BESC BDO Trevisan Independent Auditors Economic and financial appraisal report

BESCRI BDO Trevisan Independent Auditors Economic-financial evaluation report

BESC KPMG Auditores Independentes Economic-financial evaluation report

BESCRI KPMG Auditores Independentes Economic and financial appraisal report

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Pursuant to Law 6404/76, in merger cases involving common controllers, in the case of BB and BESC, which are controlled by the Federal Government, a corporate reorganization is carried out where shares of the merged company are replaced by shares of the merging company , issued especially for the subscription of the shareholders of the merged companies, and there is no cash disbursement.

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Bbased on the discounted cash flow criterion for BESC and BRESCI in relation to the weighted average price of BB shares in the last 90 calendar days of 2007, the exchange ratio was as follows:

– 1 (one) share issued by BB for 12.13308922 BESC ON shares;

– 1 (one) share issued by BB for 12.13308922 BESC’s PNA shares;

– 1 (one) share issued by BB for 12.13308922 BESC’s PNB shares; and

– 1 (one) share issued by BB for 1,592.261627 BESCRI ON shares.

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The condition of BB of a member of the New Market of BOVESPA obliges it to comply with certain rules, among others, to the provisions of item 3.1 of the Novo Mercado Regulation, which prohibits the issuance of preferred shares.

Thus, to conform to the rules of the New Market, BB transformed all preferred shares (PN) into registered common shares (ON), which is why BESC’s preferred shareholders will have their rights modified. However, it is important to note that Banco do Brasil ON shares have the right to vote at General Meetings.

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BESC%

Union 95,9

CODESC * 1.6

Other 2,5

BESCRI%

Union 95,3

CODESC 3.8

BESC 0.9

Others 0.0

* Development Company of the State of Santa Catarina

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Free-float will go from 21.7% to 21.5%.

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On December 31, 2007, the base date of the economic-financial assessment that determined the fair value for the share exchange ratio, BESC registered Capital of R $ 1.319 billion and PL of R $ 190.7 million while BESCRI held a Share Capital of R $ 367.4 million and a PL of R $ 217.2 million.

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Yes. On December 31, 2007, the accumulated profit was R $ 27 million. In 1Q08, BESC recorded a profit of R $ 21.7 million, of which R $ 16.4 million was related to 2Q08.

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BESC has a total of 252 branches, of which 248 are in the state of Santa Catarina, 1 in Rio de Janeiro, 1 in Brasilia, 1 in Porto Alegre and 1 in Curitiba.

No change will be made to the service network of BESC or BB in Santa Catarina, immediately after Day “D”.

Carefully, BB will examine the distribution of the new service network, formed by BB BESC’s branches, to seek greater efficiency and quality in customer service, adapting it to the Bank’s strategic interests in Santa Catarina and preserving service in a contractual manner defined. This may mean the relocation or specialization of some point of service in those places where the study points out this need.

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The merger of BESC and BESCRI is justified because, for Banco do Brasil SA:

a) enables a new growth path, as an alternative to the organic expansion model, in order to defend its competitive position;

b) consolidates BB’s leadership position in the relationship with the public sector, through the achievement of the status of financial agent of the State of Santa Catarina;

c) enables the capture of opportunities for growth and economic value through, through:

– expansion and profitability of the customer base, with BB’s business model and product portfolio;

– expansion of the service network, with the adoption of the BB model, considering the capillarity of the BESC network;

– improvement of cost efficiency and scale gains from BB’s operating model;

d) strengthens BB’s presence in Santa Catarina and in the south of the country, leveraging its leadership position and participating in the positive prospects for the continuity of the state’s economy;

e) preserves and broadens the public policies of development;

f) allows BB to subrogate itself in all the rights and obligations of BESC and BESCRI, including those that are exclusive to official financial institutions;

g) guarantees that the public attributions exercised by BESC and BESCRI will be assumed by BB, since it is an official bank, thus maintaining its role as a governmental action instrument.

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For customers, the opportunity to count on the largest bank in the country, with leadership in several markets – such as assets, credit portfolio, third party resources management, distribution network and self-service terminals, among others – and which participates of the Country’s development almost 200 years ago. Another advantage for customers would be the availability of BB’s product portfolio. For the shareholders, the participation in a company listed in the highest level of Corporate Governance, the Novo Mercado, whose shares make up the BOVESPA Index, thus, with high liquidity.

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There is no extinction plan for the BESC brand. What exists is BB’s commitment to maintain the brand for the same period of the service agreement, signed by BB and BESC, with the State of Santa Catarina, which has a term of 5 years. BB’s Marketing and Communication Department will ensure that the coexistence between the two brands is given in the best possible way and adds value to the business. BB knows the importance of the BESC brand for its clients and will use it positively and in its favor.

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The BESC System is one of the 40 largest banks in the country and consists of two operations:

– BESC is a retail commercial bank with state operations and shareholders’ equity of R $ 176 million;

– BESCRI operates in real estate credit and has shareholders’ equity of R $ 215 million;

– both operate in a very discreet manner in the market, BESCRI has not granted new loans for years, generating fairly conservative asset and liability operations, a profile with low leverage, limited product / service structure and the need for investments for its modernization;

– in contrast, the BESC System has the largest branch network in the state of SC, 25% higher than BB’s (second place) and 110% higher than Brasdeco’s (third-place) network, a significant portion of payroll-deductible loans in Santa Catarina is a very strong brand;

– this combination of high retail penetration (brand and capillarity) and great idleness (capital and operational), in concomitance with the consequences of a bank that joined PROES about a decade ago, make the historical results of the BESC System a little buyer accurate for your prospects.

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The minority shareholders of BESC and BESCRI who do not agree to the mergers may exercise the so-called right of withdrawal. The shareholders exercising the right of withdrawal will be offered two alternatives of payment in kind for the shares of BESC and / or BESCRI in their possession. He shall receive an amount equivalent to the greater of the value of the shares and the economic value of the shares.

Each dissenting shareholder of BESC will receive R $ 2.4468 per share, and dissenting shareholders of BESCRI will receive R $ 0.0186 per share.

The shareholders’ right to withdraw shall be limited to the shares held by such shareholders until 11.09.2008, that is, they are registered in the records of the PARTIES to be merged at the end of 09.09.2008, and may not be exercised in relation to to shares acquired after said date, as provided in art. 137, paragraph 1, of Law 6404/76.

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To exercise the right of withdrawal, as provided in art. 137, II of Law 6,404 / 76, the minority shareholders of BESC and BESCRI, must expressly express their views in writing within thirty (30) days from the date of publication of the minutes of the Extraordinary General Meeting of Shareholders shareholders of Banco do Brasil to resolve on the approval of the merger protocol, and payment of the respective reimbursement will depend on the approval of the mergers, pursuant to art. 230 of Law 6,404 / 76.

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The shareholders of BESC and BESCRI will receive from Banco do Brasil, in local currency, the amount corresponding to any fractions of shares issued by Banco do Brasil that can not be fully attributed, as a result of the substitution relations, after disposal of said fractions in a stock exchange, dividing the proceeds of the sale, proportionally by the holders of the fractions, in accordance with § 3 of art. 169 of Law 6,404 / 76.

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Banco do Brasil will issue shares for the payment of all shareholders of the two institutions that will be merged. In other words, we will not use BB’s cash for acquisition and, also, in BB’s balance sheet, goodwill will not be accounted for by the BACEN regulations, even considering that the amount involved in the transaction equals a price / equity value of 1, 57x, that is, there is no impact on BB’s results.

Updated 12/27/2018 at 03:52 pm