All questions

Acquisitions of public companies

i Going-private transactions in Brazil

Although the Brazilian market has seen a reasonable number of going-private and delisting transactions, there are few, if any, issues in these deals that relate to acquisition finance. The same reason noted above for the limited number of LBOs in Brazil applies to going-private transactions: prohibitive interest rates hinder more prolific activity by sponsors and other investors to structure a leveraged going-private deal. On top of that, the fact that the number of publicly traded companies with dispersed control in Brazil (true corporations) can be counted on one hand limits the situations of public-to-private transactions dependent on leverage.

In this sense, noteworthy going-private transactions in the Brazilian market are usually 'elephant' deals conducted by large strategic players in specific situations. Examples include UnitedHealth's acquisition of Amil, BicBanco's acquisition by China's CCB (the latter two followed by a minority delisting tender offer), the LAN/TAM merger and Redecard's take-private deal by Ita├║, its controlling shareholder. In 2014, Santander Spain concluded an exchange tender offer to delist Santander Brazil, offering shares of the parent bank in exchange for the subsidiary shares. In the wake of the Santander tender offer, other controlling shareholders followed suit, taking back private companies that listed a minority stock (probably owing to the overall poor performance of the stock market over recent years and increased investor pressure). This happened with a number of companies, including the local unit of Souza Cruz, Banco Daycoval and BHG.

In any event, going-private transactions have to follow specific requirements set forth by CVM Instruction 361, of 5 March 2002, which governs tender offers. Among the several types of tender offers, CVM Instruction 361 defines the 'going private tender offer' or 'delisting tender offer', prescribing a mandatory tender offer at fair price as a condition for the cancelling of the registration of a public company.

One issue that may come up relating to debt financing is the equitable treatment of shareholders in the context of a tender offer. Article 4, II of CVM Instruction 361 requires that minority shareholders are treated equally within an offer, including with respect to information on the company and the offeror. In the event that the offeror is obtaining acquisition finance from a financial institution that is also a minority shareholder or has an affiliate that is a minority shareholder, this should not entail additional advantages to this shareholder-lender when compared with the others (which may be difficult to sustain given that naturally, as a lender, the minority shareholder will have better and more complete information than the other minority shareholders). To minimise risks of questioning, the transaction should be conducted at arm's length and the maximum amount of information made available to the lender should also be available in the tender offer prospectus.

ii Squeeze-outs under Brazilian law

The squeeze-out of minority shareholders was introduced in Law No. 6,404 of 15 December 1976, as amended (Corporation Law) as part of a reform passed in 2001 aimed at improving corporate governance and minority shareholder rights.

Along with the additional protection afforded to minority shareholders, which basically requires a tender offer at fair price and the acceptance (or consent) of more than two-thirds of the minority shareholders registered to participate in a special auction as a condition for the delisting, the new legislation permits a squeeze-out in the event that the tender offer is successful (i.e., the company is delisted) and the controlling shareholder holds more than 95 per cent of the company's share capital after the offer.

One important concern that arises in squeeze-out transactions relates to the inability of the offeror to reach the minimum 95 per cent threshold during the delisting auction. In such a case, some alternatives are available to the offeror: it can obtain the 95 per cent threshold in the three-month period following the auction (the put-right period) or it can privately negotiate with the minority shareholders.