Definitions
Procedures
Fiduciary Duties
Competing Offers
Higher Bids
Withdrawal of an Offer
Acceptance and Revocation
Proration
Notice of Offer Results
Settlement
Conclusion
The National Securities Commission (Comisión Nacional de Valores or CNV) recently enacted regulations regarding tender offers, public exchange offers and takeover offers.
The regulations are effective from May 30 2000 and comply with the Venezuelan Capital Markets Law.
The main aspects of the regulations concern the following:
- fostering transparency in any tender offer, public exchange offer or takeover offer and preventing any erratic fluctuations in the prices of publicly-traded shares;
- preserving shareholders' equal access to information, necessary to decide whether to accept or refuse an offer;
- permitting potential competing offers by interested parties, including majority or minority shareholders who have blocking powers; and
- giving all holders of securities the opportunity to evaluate proposals, by making available all the information related to the proposed transactions.
The law provides a number of definitions, including the following.
Tender offer
A tender offer is a procedure whereby the initiator offers cash for the target company's securities, shares or rights in order to give the initiator a significant participation in the target company (provided it does not have the effect of a takeover).
Public exchange offers
A public exchange offer is similar to a tender offer, except that cash is not the consideration. Rather the initiator offers securities or any other right as consideration.
Takeover offer
A takeover offer is made by an initiator who is seeking the acquisition of shares, securities or rights of the target company so as to acquire the company or at least obtain a political majority.
All regulatory procedures regarding these three types of offers are mandatory. The procedures for tender offers and public exchange offers may be started simultaneously by the initiator. The consideration in a takeover offer may be either cash or securities, provided that the shareholder or holder of a right may choose between the offered considerations until the closing of the offer.
Any initiator wishing to acquire or significantly increase its participation in a public company must inform the CNV of its intentions. A detailed report on the proposed transaction must be submitted to the CNV at least five working days prior to the date on which the market will be informed of the transaction. The CNV will authorize the publication of the report within five days of receiving it. Also, the CNV may order the publication of any complementary information related to the offer.
The CNV will treat information filed by the initiator as confidential until it is published.
The regulations contain fiduciary duties for the initiator as well as for the administrators and shareholders of the target company. The following are the most important fiduciary duties.
The initiator
The administrators of the initiation and any other related persons (as defined by the regulations) should keep confidential all information related to an offer until the report is published. None of the initiator's administrators or related persons may obtain or provide information regarding the acquisition of shares of a target company when the information is not public knowledge. The initiator must ensure that none of its actions compromise or affect the equal treatment of holders of shares, securities and/or any other rights.
Administrators and majority shareholders
From the date on which the report of the offer is disclosed to the public, the referred persons should:
- preserve the confidentiality of the information;
- not make any declaration to the media different from those contained in the reports on the offer;
- not perform any act which may imply any disposition of the properties of the company; and
- not increase the number of shares and/or any other securities of the target company over the amounts already in the possession of the company.
Any related or concerted person, including the shareholders of the target company, may make a competing offer, thus becoming an initiator. To such effects, such person(s), must file with the CNV a report on the competing offer that complies with the requirements of the regulations. This report must be filed within seven working days of the expiration of the offer.
Any initiator of an offer may raise its bid, up to 10 working days preceding the expiration date, in order to improve the conditions of the corresponding offers.
The initiator may withdraw an offer within the following times:
- up to the commencement date of the offer;
- from the commencement date until three working days before the offer closes; and
- up to the date of the settlement agreement, if the antitrust authorities or any other competent regulatory body imposes supplemental conditions to the offer.
The initiator must be notified of the acceptance of an offer at the place and in the manner stipulated in the report before the closing date of the offer.
Acceptance of the offer may only be revoked if (i) there is a competing offer or a higher bid, and (ii) such acceptance has been made prior to the commencement of the competing offer or the higher bid.
Proration will be applicable, according to the terms of the offering documentation, unless the initiator has reserved the right to acquire additional securities and has exercised the right to do so. No proration will be applicable regarding a particular seller, if such seller holds a single share and/or security of the target company.
Notice of the offer results must be given within the two business days following the closing of the offer, to the following:
- the CNV;
- the stock exchange; and
- the public, through publication in two national newspapers.
Any settlement and/or payment arising from acceptance of the offer must take place according to CNV requirements, including within five working days following the closing of the offer.
The regulations contain specific rules applicable to public tender offers concerning guarantees, valuation of securities, supply of additional information and special reports.
The regulations contemplate a simplified procedure which is applicable in case where
- the initiator already holds less than two-thirds of the voting securities of the target company and is offering to take total control of the target;
- the offer is limited to 10% of the voting securities of the target company; or
- the target company is conducting a plan to purchase treasury shares.
Other sections of the regulations provides specific rules concerning the protection of investors, such as the commencement of investigations of offers, special information to be provided by the target company and procedures for the determination of obstructive activities.
For further information on this topic please contact Gustavo J Reyna at D'Empaire Reyna Bermudez Abogados by telephone (+58 212 264 6244) or by fax (+58 212 264 7543) or by e-mail ([email protected])
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