On May 31, 2016 BM&FBOVESPA S.A. - Bolsa de Valores, Mercadorias e Futuros (BVMF) issued Circular-Letter No. 050/2016-DP (CL 50), which regulates the procedures applicable to public tender offers for the total or partial voluntary acquisition of units issued by real estate investment funds (Fundos de Investimento Imobiliário – FII) to be executed through auction on the trading system of BVMF.
The issue of CL 50 meets a demand of the FII industry by regulation of this type of transaction, which is known by the initials of the expression in Portuguese Oferta Pública de Aquisição de Cotas – OPAC. In this regard, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM), by means of CVM Instruction No. 571, of November 25, 2015, granted to BVMF, as the organized market managing entity, the responsibility of establishing the OPAC's rules and operational procedures.
II. General Provisions
The OPAC will observe the following principles: (i) to be directed without distinction to all holders of units issued by the FII; (ii) to be carried out in such a way as to ensure equal treatment to the recipients, allowing them adequate information as to the background of the FII and the offeror so that the recipients may have the necessary elements to decide about the acceptance of the OPAC; (iii) to be represented by a Full Trading Participant or a Trading Participant authorized to trade by BVMF (the intermediary institution), which should ensure the financial settlement of the OPAC and the payment of the acquisition of remaining units, as set forth in item (x) below; (iv) to be launched with uniform price and payment terms; (v) to be paid at sight and in currency; (vi) to be executed through auction on the trading system of BVMF; (vii) to be allowed the conduct or interference of a competing OPAC formulated by a third party other than the offeror or person linked to the offeror; (viii) to be immutable and irrevocable after the disclosure of the notice, unless: (a) the modification results in improvement of the offer in favor of the recipients; (b) the offeror waives any condition established in the offer for completion of the OPAC; or (c) the modification or revocation is in strict accordance with the terms and conditions set out in the notice; (ix) to be subject to conditions whose implementation does not depend on direct or indirect action of the offeror or any person linked to the offeror; (x) the offeror must assume the obligation to acquire the remaining units for a period of 1 (one) month of the date of the auction, by the final price of the OPAC, updated until the date of effective payment, in the form set out in the notice of the OPAC, if more than 2/3 (two thirds) of the units issued by the FII are held by the offeror or of persons linked to the offeror after the auction of the OPAC; and (xi) the offeror must also assume the obligation to maintain the free float of at least 1/3 (one third) of the units issued by the FII, except in the situation referred to in item (x) above.
The offeror, the intermediary institution, the persons linked to them involved in the OPAC, determined or designed, and the persons to whom they are working with or assisting in any way, will be restricted from trading units issued by the FII object of the offer and they shall adopt appropriate procedures to ensure compliance with this restriction.
The prohibition of trading referred to above does not apply to the following situations: (i) negotiation on behalf of third parties; (ii) operations clearly designed to track real estate reference indices; (iii) transactions carried out as a market maker, pursuant to the CVM rules in force; or (iv) discretionary portfolio management.
This restriction is applicable since the protocol of the notice or disclosure to the market of the intention to carry out the offer or the date of the intermediation contract, whichever occurs first, until the close of the auction of the OPAC.
In order to obtain the request for authorization to perform the OPAC, the intermediary institution must send the following documents: (i) draft of the notice; (ii) copy of the intermediation contract between the offeror and the intermediary institution of the OPAC; (iii) proof of payment of the Examination Fee of the offer (Taxa de Análise da Oferta), pursuant to the Pricing Policy for Issuers and Public Offerings in force; (iv) appraisal report, if the criteria for definition of price has been based on a report; and (v) other documents, depending on the structure of the OPAC.
The notice shall obligatorily contain the following information:
(i) identification of the FII and main assets of the fund´s
equity, as applicable; (ii) price, payment terms and amount of the
units object of the OPAC; (iii) complete data of the offeror and of
the intermediary institution of the OPAC; (iv) purpose of the
offer; (v) criterion used for defining the price; (vi) terms and
conditions of the offer; (vii) procedures for interference or
deadline for release of the competing OPAC; (viii) deadline and
procedures for enabling the unit holders; (ix) procedures for
conducting the auction; (x) data about the FII object of the OPAC,
such as: (a) share price of the past 12 months, if applicable; (b)
income; and (c) economic and financial indicators; (xi) statement
by the offeror on the maintenance or not of any tax benefit, in
case of realization of the OPAC; (xii) quantity of units issued by
the FII held by the offeror or by persons linked to the offeror;
(xiii) statement by the bidder that it will have to pay to the
holders of the outstanding units that accept the OPAC the
difference, if any, between the price they receive for the sale of
their units, updated in accordance with the notice of the OPAC and
the legislation in force and adjusted by the changes in number of
units eventually occurred, and the price per unit that would be due
if it is found within one year of the date of auction of the OPAC,
that a new OPAC has been made by the offeror, or by persons linked
to the offeror; and (xiv) statements by the offeror and the
intermediary institution that they are unaware of the existence of
any facts or circumstances, not revealed to the public, that may
have relevant influence on the trading prices of the units object
of the OPAC.
VI. Competing OPAC
The competing OPAC shall occur within five days before the date of the auction by a price that it is at least 5% higher than the price of the OPAC. The subsequent offers must be at least 1% above the price of the highest bidder registered until then. The competing OPAC will acquire the minimum amount of 10% of the total units of the FII's original offer, except if the original offer is made to acquire more than 2/3 of the units of the FII, in which case the competing OPAC must have the same number of units of the original offer.
The buyer interference at the auction will be allowed, provided that the same conditions applying to the competing OPAC are observed, other than the release of the public notice.
The interested party that it is willing to interfere in the auction shall inform the Chief Operating Officer (Diretor de Operações) at BVMF of its intention, in addition to providing him with information about price, quantity of units and complete data of the interfering party and of the intermediary institution.
VII. Analysis Period
BVMF will have a period of 10 business days to review the notice of the OPAC. The offeror will also have a period of 10 business days from the receipt of the notice analyzed by BVMF to meet the requirements.
After receipt of the notice of the OPAC with the requested changes, BVMF have a deadline of 3 business days to authorize the holding of the auction of the OPAC.
After examining the documentation and approval of the final version of the notice, the Chief Operating Officer of BVMF shall authorize the auction be held.
Once the authorization to hold the OPAC is granted, the offeror shall forward the notice to the administrator of the FII, in order to take the following steps: (i) to give notice of the offer to the unit holders, through the disclosure of the notice on the website of the FII; and (ii) to develop and make public a reasoned opinion based on any OPAC for the issuance of units of the FII, covering the following topics: (a) the convenience and opportunity of the offer as to the interest of all unit holders and the liquidity of their units; (b) the impact of the offer on any tax benefits applicable to the FII; (c) strategic plans disclosed by the offeror in connection with the FII; and (d) other points deemed to be relevant.
In the above-mentioned opinion, the FII administrator must express a reasoned opinion favorable or contrary to the acceptance of the OPAC, warning that each unit holder is responsible for accepting or not the OPAC.
The manifestation about the conditions of the offer will have to be made public until five days before the auction. Any manifestation of the FII manager whose units are object of the OPAC, if published by the administrator, shall supply the obligation referred to herein.
IX. Disclosure of the Notice
The deadline for disclosure of the notice is a maximum 15 business days after the approval of BVMF.
The deadline for completion of the auction after the disclosure of the notice is at least 15 and no more than 30 business days.
Should the offer be modified, the date of the auction may be extended if the change occurs after seven business days of the date of publication of the notice.
X. Final Considerations
BVMF may determine at any time: (i) the disclosure of any additional information other than those laid down in CL 50; (ii) the suspension of the OPAC procedure, if it is found that the identified irregularity can be corrected, keeping the suspension until such correction happens; or (iii) the cancellation of the OPAC, if it concludes that the identified irregularity or illegality cannot be corrected.
For the purposes of CL 50, "person linked" means any individual, legal entity, fund or universality of rights representing the same interest of another individual, legal entity, fund or universality of rights.
Consequently, "outstanding units" mean those units which are not owned by the offeror or any person linked to the offeror.
Exceptional situations, omissions or cases not provided for in CL 50 will be decided by BVMF based on the particularities of the fact at hand.
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.