Brazil: The Adoption Of the Mergers And Acquisitions Committee In Brazil

Another important measure is being taken in Brazil which affects merger and acquisition (m&a) transactions in our jurisdiction involving publicly-held corporations (companhias abertas).

On June 27, 2012, an agreement for the creation of the Mergers and Acquisitions Committee (Comitê de Fusões e Aquisições - CAF) was signed by the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros - BVMF) and three other class entities, namely: (i) the Association of Capital Markets Investors (Associação de Investidores no Mercado de Capitais - AMEC); (ii) the Brazilian Association of Entities of the Financial and Capital Markets (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais - ANBIMA); and (iii) the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa - IBGC). Only the Brazilian Association of Publicly-Held Corporations (Associação Brasileira das Companhias Abertas – ABRASCA) decided not to adhere to this initiative for the time being1.

The Brazilian CAF is a voluntary self-regulatory organization, inspired in the UK Takeover Panel model, aimed at assuring the equitable treatment of publicly-held corporations´ shareholders during public tender offers (ofertas públicas de aquisição de ações – OPAs) and corporate restructuring (operações de reorganização societária).  This new organization is expected to be established and start operating in the month of October of 2012. The central objective of CAF is to guarantee that the m&a transactions be executed in equitable conditions.

The Self-Regulation Code for Mergers and Acquisitions (Código de Autorregulação de Aquisições e Fusões), hereinafter simply referred to as Code, which wording is still being discussed, represents a composite of principles and rules regarding the CAF´s operation. Operational aspects and those relative to the financing of CAF are also being defined.

CAF will be formed by members elected by its founding entities (BVMF, AMEC, ANBIMA and IBGC) and part of the members shall be independent. When called upon, CAF´s mission will be to opine and decide upon complaints regarding any public tender offer for the acquisition of shares (OPA), and regarding every type of takeover (incorporação), stock takeover (incorporação de ações), merger (fusão) and spin-off with takeover (cisão com incorporação)  involving publicly-held corporations.

It is important to note that the Code will not substitute the legal and regulatory provisions applicable to m&a transactions that are within its ambit. CAF shall also not substitute the role of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) regarding such transactions. The transactions submitted to CAF shall already be presumed legitimate by CVM.

Companies may adhere to CAF in two different manners. First, the company can include a provision in its bylaws (estatuto social) accepting to submit to CAF each and every of its public tender offers and corporate restructuring transactions. Second, if involved in a certain m&a transaction, the company can opt to take such specific transaction before CAF on an individual basis.

When applying the Code, CAF shall privilege the principles rather than the rules themselves. Therefore, if and when faced with a concrete case, CAF may open an exception as regards the application of a specific rule if CAF understands that the principle can be observed through a less onerous means, such as determining the adoption of other measures not expressly foreseen in the Code.

There are two main rules which are at the front of the applicable legislation currently in force and shall apply to the transactions reviewed by CAF.

The first rule is that a public offer is mandatory whenever a significant stake is achieved, in order to assure that an investor or group of investors that obtains a significant equity participation in the company (which may vary between 20% to 30% of the capital, according to the criteria contemplated in the company´s bylaws) makes a buy offer to all the shareholders.

The second rule is the right of minority shareholders to a counter-report in corporate restructuring transactions involving related parties.

Furthermore, the rules do not permit the existence of different terms of exchange between shares of the same type and class in corporate restructure transactions, unless: (i) the holders of the less favored share type or class approve the adoption of differentiated terms of exchange; or (ii) CAF waives this rule in a case where the difference is based on the market price for equities.

CAF will not judge the merit of the values or the convenience of the transactions that are submitted to it, nor rule on and inspect competition issues, which are the responsibility of the relevant government organizations. The Brazilian antitrust agency responsible for authorizing acts of economic concentration which meet certain thresholds is the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica – Cade). If the m&a transaction involves financial institutions and other similar entities authorized to operate in Brazil by the Central Bank of Brasil (Banco Central do Brasil – Bacen), then it must be submitted to the prior approval of Bacen.


1 According to the ABRASCA Vice-President Luis Espínola, there is a strong reluctance on the part of its members (the publicly-held corporations) regarding the criteria to be adopted by CAF for the pricing of the shares, because the companies do not accept that the price take into account the market value of the shares to be sold, which will be equivalent to the best price determined during the last 12 months before the tag along provision. ABRASCA believes that this will be unfair and represents a disincentive for the shareholder to acquire a relevant stake of the company and that the shares should be negotiated according to their economic value. Another possibility would be to submit the investor´s proposal to the consideration of the company´s Board (Conselho de Administração) and/or the General Shareholders´ Meeting for approval. A consensus was not yet achieved in this regard. BVMF will try to persuade ABRASCA to join CAF.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
Adriana Maria Gödel Stuber
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