Transparência e Governança

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cases TCP/TCO


Year: 2003

In a Material Fact published on January 16, 2003, Telesp Celular Participações S.A. (TCP, the old name used by Vivo which, at the time, was a subsidiary company of Portugal Telecom S.A.) informed the market of the acquisition of a controlling interest in Tele Centro Oeste Celular Participações S.A. (TCO), a mobile telephone company which came about following the privatization of Telebrás, and which operated in the Northern and Central-Western regions of the country. In this statement, an exchange ratio was stipulated after the tag along takeover bid of the ordinary shares for the preferential shares of 1.27 TCP shares for each lot of 1,000 TCO shares. The acquisition price of the controlling block of ordinary shares was R$ 18.23/lot of 1,000 shares to be paid over time.

In May 2003, TCP launched a takeover bid for other ordinary shareholders who had the option of receiving 80% of the acquisition price of the controlling block- R$ 15.59through until the same date stipulated for acquisition of the controlling block, or the alternative of receiving a R$ 14.97 lump sum. This alternative involving a lump sum payment was approved by the CVM´s Board at meeting held on 07/14/2003.

The acquisition of a controlling interest in TCO was equal to 61.1% of the ordinary shares, or 20.4% of the company’s capital. Following the offer required by the law, open only to the other ordinary shares, TCP formulated an offer to TCO’s preferential minority shareholders, maintaining the exchange ratio of 1.27 TCP shares for each TCO preferential share (announced in January). This proposed exchange ratio was, at the time, equal to R$ 5.61/lot of 1,000 preferential shares, or, in other words, far less than the R$ 18.23/lot of 1,000 shares paid to the ordinary shareholders.

To reverse this situation, various preferential shareholders, including the ‘Fundo JGP Hedge de Investimento Financeiro’ and the Banco Pactual S/A, sent the CVM complaints and requests related to the establishment of the proposed exchange ratio and its process.

The arbitrated price, as a direct ratio of the price of TCP, functioned as a “restraint” on the market negotiating price, preventing TCO’s shares from being priced adequately, or, in other words, being valued as much due to their own operational performance (above average) as in relation to the whole operation under analysis (the exit of the old controlling shareholder and reduction of debt).

The listed price of the TCO shares was already being depreciated due to the serious corporate governance problems suffered by the company, which had been obliged to loan around US$ 220 million to its old controlling shareholder (the Splice Group). On top of this, reports from Brazilian and international investment analysts were already providing evaluations of a fair price on TCO based upon various financial tools that were available and accepted by the market and, in all the evaluations published, the fair exchange ratio established an exchange ratio which was above 2.0 or, in other words, two TCP shares for each TCO share – far more than the ratio of 1.27.

which had been announced in the Material Fact After analyzing the requests from the minority shareholders and from TCP, the Superintendence of the CVM (the SEP) concluded that the joining of the operation of acquisition of control and merger of the TCO shares by TCP, from an exclusively formal perspective, was, apparently, in line with the legislation and regulation in effect. However, the manner in which the operation was presented to the market suggested evidence of price manipulation, or even the creation of artificial price conditions, in view of the publication of the exchange ratio of the shares without any basis in any evaluation criteria at the time the acquisition of control and the intention to merge the TCO preferential shares was announced.

The SEP report also stated that:

• No determining element was found, at that specific time, for the publication of the exchange ratio of 1.27 issued TCP shares for each issued TCO share. The diligence and speed of the administrator in relation to this publication brought no benefit to either the company (TCO) or its shareholders, only to the controlling shareholders. On the contrary, it even caused confusion in the market, leading to criticism and the establishment of conditions for free price formation.

• Since there was no real evidence or corroborating documentation, it was impossible to confirm that there had been any clear intention on the part of the companies’ administration, or its controlling shareholders, to create artificial negotiating conditions or any other purposeful infraction of the law. However, it was clear that the publication of the exchange ratio of 1.27 issued TCP shares for each issued TCO share was not in the interests of TCO’s preferential shareholders, nor did it meet the requirements of Art. 153 of Law n° 6.404/76.

• The transaction will also meet the demands of Art. 154 of the same law, which states that “the administrator should exercise the powers that have been conferred upon him to achieve the purposes and interests of the company, the demands of the public good and the corporate purpose of the company having been satisfied”. Paragraph 1 of this article provides further details on this issue: “The administrator elected by a group or type of shareholders has, for the company, the same duties as the others, and may not, even in defense of the interests of those by whom he was elected, fail to perform these duties”.

• It is not possible to confirm that there was fraud involved in the corporate acts or in the fulfillment of the obligation to announce the Material Fact, although an impairment can be recognized in the normal development of TCO’s business as can a potential risk of disadvantage to the preferential shareholders.

• The request presented by the claimant deserves to be recognized, or, in other words, the CVM should decide that TCP must desist from moving ahead with the operation and that a Material Fact be published announcing its cancellation.

As a result of this first manifestation by the CVM, a new Material Fact was published on August 21, maintaining the exchange ratio and presenting additional explanations concerning the methodology employed and the justification of the ratio.

Two months later, the Material Fact dated October 28, 2003, confirmed the exchange ratio of 1.27 and mentioned that two expert economic-financial reports, conducted by Citigroup and Merrill Lynch, confirmed the suitability of the mentioned exchange ratio for the TCO preferential shareholders, based upon the various evaluation methodologies. On November 11, 2003, the tag along public offer for the ordinary shares was concluded, resulting in TCP’s acquisition of 90% of the company’s ordinary shares. TCP then called two assemblies for December 22, 2003, in order to ratify the exchange ratio proposed for the preferential shares. On December 11, the CVM decided to suspend the mentioned assemblies for a period of 15 days, meaning they were then called for January 7, 2004. At a meeting of the CVM Board on December 26, 2003, it was decided that:

“For the reasons stated in the Chairman’s Opinion, the majority of the Board believed that the proposal to be submitted at the general assemblies of TCO and TCP goes against current legislation since it does not assure equal treatment to all the TCO shareholders, considering the operation of assignment and transfer of the company. The Board unanimously believes that, with the date for the calling of the TCO and TCP general assemblies suspended, and independently of the right that each of the companies had to call those assemblies prior to the statement from the Board, they may only be held as of January 12, 2004.”

In a Material Fact published on January 12, TCP suspended the proposal for the exchange ratio and announced other measures with a view to increasing the synergy between TCP and TCO.

On August 24, 2004, TCP launched a voluntary offering for TCO shares at a price equivalent to R$ 10.70/lot of 1,000 shares, even though it included only part of the preferential shares. This voluntary offer was concluded in October 2004, with the above acceptance of the maximum sum and consequent apportionment between the shareholders who accepted the offer.

Read more about it:
Fato Relevante Telesp Celular – 16 de janeiro de 2003.pdf

Fato Relev TCP TCO 21_08_03[1].doc

Fato Relev TCP TCO 28_10_03 Port[1].doc
Fato Relevante 11_12_03[1].doc
Fato Relevante 12_01_04[1].doc
FatoRelevanteTCP TCO 25_08[1].doc
Final Laudo – Português Citigroup[1].pdf
Final Laudo – Português ML[1].pdf



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