Transparência e Governança

14/10/2013

By Giulia Camillo and Christiana Sciaudone

Brazil’s stock exchange is winning support for a proposal to create a takeover panel to speed up conflict resolution after deals as large as Oi SA’s $3.52 billion takeover of Brasil Telecom Participacoes SA were held up for four years.

The panel, modeled after the U.K.’s Panel on Takeovers and Mergers, would be an independent body funded by companies with a goal of insuring fair treatment to all shareholders. Members would have 10 days to rule on a deal. The Brazilian securities regulator, or CVM, has agreed to uphold all panel decisions.

The initiative will help improve corporate governance in Brazilian equity markets after minority investors unsuccessfully filed complaints against deals including Petroleo Brasileiro SA’s $70.3 billion share sale in 2010 and Oi’s 2009 acquisition.

The last big step Brazil took to protect investors was in 2000 with the so-called Novo Mercado, a set of rules such as one-share, one-vote that helped spur a record 64 initial share offerings in 2007.

“Brazil was the pioneering country in terms of taking an innovative approach through the Novo Mercado; in the last few years, Brazil hasn’t enjoyed quite as high a reputation with corporate governance issues,” said Daniel Blume, senior policy analyst within the Organization for Economic Co-operation and Development’s corporate affairs division in Paris. “It’s a question of whether Brazil becomes seen as a leading market or whether it continues as it has been.”

No Poison Pills

To subscribe to the takeover panel, companies must give up so-called poison pills, a method used by boards to prevent a takeover bid, and offer to buy minority investors out at the highest price of the previous 12 months when stakes of 20 percent to 30 percent are sold.

The panel would approve takeover terms before they are publicly announced, reducing the chances of conflict, said Joao Nogueira Batista, the chief executive officer of the takeover committee in Brazil. Batista, a former chief financial officer at Petrobras, is a former president of the institute of investor relations and vice president of the Brazilian institute of corporate governance.

BM&FBovespa SA, the operator of the Sao Paulo exchange, was the first panel adherent. Additional subscriptions are expected by year’s end, Batista said.

Much Faster

One company considering membership is Valid Solucoes e Servicos de Seguranca em Meios de Pagamento e Identificacao SA, which offers services in identification systems and payments.

The biggest advantage is that corporate reorganizations would be approved much faster, said Rita Carvalho, Valid’s financial and investor relations manager.

“The panel’s proposal will speed up corporate restructuring, as CVM will exempt companies that have the panel’s stamp of approval from further review,” Carvalho said in e-mailed response to questions.

The plan to create the mergers and acquisitions committee, known as CAF, came in response to a 2009 CVM request for self-regulation in mergers and acquisitions, Batista said. The panel sponsors include Capital Markets Investors Association, known as Amec, the Brazilian Institute of Corporate Governance, Capital Markets Association, known as Anbima, and BM&FBovespa.

Companies would be in a better position to attract foreign investment because the move would show commitment to good governance, said Eduardo Centola, head of investment banking and partner at Banco Modal SA in Sao Paulo.

“There has to be some kind of reward from the market for companies that have this stamp from CAF,” said Centola, a former Goldman Sachs Group Inc. executive. “When capital markets start heating up again, these are the companies that will be much better perceived by foreign investors.”

Investor Criticism

When Oi decided five years ago to acquire Brasil Telecom for 5.86 billion reais, minority investors repeatedly rejected the exchange ratios offered. The dispute over the corporate restructuring of Oi dragged on for four years until majority shareholders were authorized to vote on the matter and outvoted the minority shareholders that had been holding up the process.

Oi’s recently announced merger with Portugal Telecom SGPS SA is the most recent target of investor criticism because Oi controlling shareholders, the Jereissati and Andrade-Gutierrez families, will dump $2 billion of debt into the new entity in exchange for control.

CAF is facing challenges similar to those when the Novo Mercado listing was introduced in 2000, Batista said.

Natural Path

Toll-road operator CCR SA was the first company to sign up for the Novo Mercado in 2002. This year, the Novo Mercado includes 130 companies.

“Everything that’s new is difficult,” Batista said in interview at his Sao Paulo office. “The pressure should come from investors.”

As a new and untested proposal, CAF is still little known to funds and companies. The takeover panel is organizing meetings with investors and companies, including an Oct. 29 seminar organized by Amec, a group of the biggest funds in Brazil, to discuss minority investor topics.

“For companies listed in Novo Mercado and for IPOs, it’s a natural path to adhere to CAF to gain the trust of investors,” said Eduardo Boccuzzi, a partner at Boccuzzi Advogados Associados and president of the oversight council at Apimec, Brazil’s analysts association. “The subscription is a signal of fair play from controllers. The adherent company shares should go up and you might have funds that invest only in companies with the CAF seal, like with the Novo Mercado today.”