BRASILIA (Reuters) - A Brazilian federal court on Thursday granted an injunction blocking the proposed tie-up between U.S. planemaker Boeing Co (BA.N) and Embraer SA (EMBR3.SA), a deal the Brazilian company says is crucial to its survival.
Embraer shares in Sao Paulo closed 2.42 percent lower, although it remained too early to say whether the injunction will actually block or significantly affect the deal. Labor groups in Brazil often bring court challenges against significant business deals and the injunction could be reversed.
The decision forbids Embraer’s board of directors from signing the deal to create a joint venture on commercial aviation that Boeing would control. Boeing declined to comment and Embraer did not immediately reply to a request for comment.
The legal action was brought by four congressmen with Brazil’s left-wing Workers Party.
The companies announced in July that Embraer would sell 80 percent of its commercial aviation business to Boeing in a deal valuing that segment at $4.75 billion. Embraer, among the world’s largest makers of mid-sized planes of up to 150 passengers, used to compete in that segment with Canada’s Bombardier Inc (BBDb.TO).
The deal has stalled partly because the Brazilian government, which has veto power at the planemaker, has been reluctant to give it a greenlight. Only then could the company call a shareholders meeting to approve it.
In his decision, judge Victorio Giuizio Neto cast doubt that the proposed deal would be good for Embraer’s bottom line.
“The reason is very simple, Boeing is not giving up anything” in this transaction, he wrote. The decision says Embraer would give up its profitable commercial division.
He added that the new company would threaten the rights of the Brazilian government because it would restrict its control over Embraer to the part of the company that will not be sold to Boeing.
Bombardier spun off its mid-sized commercial jet division earlier this year after selling a controlling stake to Boeing rival Airbus (AIR.PA).
The deal between Boeing and Embraer is widely seen as a reaction to an earlier deal between that joint venture.
Boeing and Airbus historically have produced larger aircraft than Embraer and Bombardier. But the mid-sized segment is expected to grow substantially, which would give Airbus a significant advantage over Boeing unless the U.S. planemaker also expands into that market.
Brazil President Michel Temer said he would leave the decision to the future administration, which takes office Jan. 1. President-elect Jair Bolsonaro has said he is in favor of the deal.
Reporting by Ricardo Brito; Additional reporting by Eric M. Johnson in Seattle; Editing by Lisa Shumaker and David Gregorio