February 24, 2017 / 1:50 PM / 6 months ago

UPDATE 5-Vale intensifies CEO search as Ferreira to quit -sources

(Adds company confirming hiring of recruitment firm, updates share performance)

By Guillermo Parra-Bernal and Tatiana Bautzer

SAO PAULO, Feb 24 (Reuters) - Vale SA has stepped up the search for a new chief executive officer as Murilo Ferreira announced his departure, signaling efforts by some top shareholders to shield the world's No. 1 iron producer from political interference, three people with direct knowledge of the situation said on Friday.

Earlier in the day, Rio de Janeiro-based Vale said Ferreira will step down as CEO when his term expires on May 26. In a securities filing, Vale did not name a potential replacement for Ferreira or provide details as to how a transition will occur.

Some of Vale's controlling shareholders lean towards picking one of Ferreira's lieutenants to spearhead Vale's transition into a company with dispersed share ownership, the people said. External candidates with previous experience at Vale are also under consideration, the people added.

Potential candidates include Chief Financial Officer Luciano Siani; ferrous metals director Peter Poppinga; and Clovis Torres, Ferreira's right-hand man and currently Vale's executive vice president for human resources.

Nelson Silva, a former Vale executive who is now chief strategy officer at state-controlled oil firm Petróleo Brasileiro SA is on the list, the people said. Other outsiders include former Vale executives Jose Carlos Martins and Tito Martins, one of the people added.

The choice of Vale's top commander is crucial to ensuring the success of a plan that will phase out a 20-year controlling shareholder pact and merge Vale's different classes of stock into a single one.

During a conference call to discuss the announcement, Ferreira gave no hint about who would succeed him.

"As far as I am concerned, I have no successor, I haven't been informed who that person will be, and, to be sincere, I have no idea who it might be," Ferreira said.

Some top shareholders had proposed that Ferreira stay in the job for another year, Reuters had reported in January. The initiative was scrapped by Ferreira, who might have asked to step aside as his age was getting closer to the company's limit, one of the people said.

"We have a vision that we must have an age limit of 65 years, and that for us is very important," Ferreira said on the call. "The queue has to go on."

INTERFERENCE

Losses in Vale's preferred shares were wiped out as the list of candidates eased concern that Ferreira's seat may be filled by a government crony. Common shares ended down 0.4 percent at 31.66 reais.

A more dispersed shareholder structure is key to enhancing transparency and stifling interference from politicians, who for years have pressed Vale to invest in non-core projects.

State pension funds led by Previ Caixa de Previdência , Bradespar SA, Mitsui & Co and an investment arm of state development lender BNDES are all members of Valepar SA, the investment holding company that controls Vale. Neither Vale nor any of the shareholders had a comment on the situation.

Vale was partly privatized in 1997, although the government continues to wield influence over it through BNDES's investment arm and the pension funds.

Still, an unnamed government official familiar with President Michel Temer's thinking said Vale will look for a "top-notch, non-political manager," in a process similar to the recruitment of Pedro Parente as CEO of the oil giant known as Petrobras.

The presidential palace's media office did not comment.

VALEPAR

Bradespar would agree to a change of leadership outside Vale's current management only if potential picks go through a selection process conducted by an executive recruitment firm, one of the people added.

In a securities filing late on Friday, Vale's board president, Gueitiro Genso, said the CEO choice will be "supported" by an executive recruitment firm.

That came after media reports earlier this month suggested members of Temer's PMDB party and Senator Aecio Neves of the PSDB party from the mineral-rich Minas Gerais state, where Vale is based, were vying to influence the selection of the new chief executive.

In the filing, Vale thanked Ferreira for his achievement, listing his efforts to focus on core activities, undertaking the company's biggest investment project ever and reducing debt.

"With his experience, dedication and respect ... Murilo leaves a legacy for all future generations of executives and employees at Vale," it said.

Ferreira took the reins at Vale in 2011, in the midst of a high-profile political clash between the company and the leftist government of Dilma Rousseff.

Rousseff pressed for the ouster of Roger Agnelli, Ferreira's predecessor, after accusing Vale of not doing enough, in terms of local investment or job creation, to help Brazil's economy battle the global financial crisis.

Ferreira tried to steer the company clear of government interference or scandal as Vale battled to complete a new mega-mine in the Amazon known as S11D just as iron ore prices collapsed. That combination led Vale to report a record net loss of $12.13 billion in 2015.

However, last year, Vale's fortunes improved sharply as the new mine began to ramp up and iron ore prices rose.

Had Ferreira stayed, investors would have known that the next two years would have meant continuity of his strategy, said Rodolfo de Angele, a senior analyst with JPMorgan Securities.

"One comfort investors have is that current shareholders seem to be pretty much aligned with the idea of a company with lower growth rates but with more discipline and sizable dividends," de Angele said. (Additional reporting by Stephen Eisenhammer and Alonso Soto in Braslia; editing by Bernadette Baum and Bill Rigby)

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