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Due diligence requirements
What due diligence is necessary for buyers?
Buyers usually undertake extensive legal due diligence over the target and its subsidiaries as a condition precedent to closing. Legal due diligence usually covers corporate, contractual, labour, tax, litigation, authorisations, licences and permits, insurance, intellectual property, environmental and, depending on the specific industry, compliance with regulatory
What information is available to buyers?
Information is typically provided by the seller, although in the case of listed targets there is also publicly available information. Generally, the buyer will send an upfront request for due diligence information. In the context of bilateral negotiations, the target and its advisers typically make all information available to the potential buyer from the early stages of the transaction. The dynamics vary when several bidders are attempting to acquire the same target, as the seller will typically disclose high-level information only during the early stages of the bidding process.
What information can and cannot be disclosed when dealing with a public company?
Where the target is an issuer of equity or debt securities registered with the Securities Market Public Registry, any material information relating to the target, its affairs or securities that has not been made public and could affect the price, quotation or liquidity of the securities issued by the target will be regarded as privileged. Undue use of privileged information to obtain a profit in the Peruvian securities market is regarded as insider trading and characterised as both an administrative infraction and a criminal offence.
Information concerning a potential M&A transaction qualifies as privileged. Thus, parties involved in an M&A transaction must be particularly cautious when reviewing and processing due diligence information, as well as when handling and distributing drafts of the transaction documents. While companies whose securities registered with the Securities Market Public Registry bear a general obligation to disclose any material information to the market, the target may request that the Superintendency of Securities grant an exemption to this obligation to keep the information relating to the negotiation of an M&A transaction confidential for a specified period.
How is stakebuilding regulated?
According to the mandatory tender offer rule, any person or entity acquiring or attempting to acquire, directly or indirectly, a significant participation by virtue of a single transaction or series of transactions in a company with at least one class of voting stock listed with a local stock exchange is bound to launch a mandatory tender offer.
A ‘significant participation’ is deemed to have been acquired whenever an investor acquires 25%, 50% or 60% of the issued and outstanding voting stock of a listed company and the acquisition is not covered by any of the exemptions found in the Regulations on Mandatory Tender Offers. It is also regarded to have been acquired whenever any person or entity that, without being entitled to the legal ownership of shares in an amount equivalent or exceeding the relevant thresholds, is entitled to:
- exercise voting rights to an amount that meets or exceeds any of the abovementioned thresholds;
- appoint or remove the majority of members of the board of directors; or
- amend the target’s bylaws.
The mandatory tender offer rule applies to the acquisition of listed voting stock and convertible bonds, pre-emptive right certificates and any other security entitling the holder to subscribe to voting stock in the target. In the case of convertible bonds, pre-emptive right certificates and similar securities, the obligation to launch a mandatory tender offer will be triggered whenever the right to subscribe or acquire voting shares may be exercised within 18 months of the acquisition.
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