Structures and applicable law

Types of transaction

How may publicly listed businesses combine?

Publicly listed businesses typically combine through public tender offers in Colombia. A transaction carried out through a public tender offer (as it is required whenever someone intends to acquire 25 per cent of the outstanding shares with voting rights of the listed company, or if a beneficial owner holds at least 25 per cent and intends to increase its interest in more than 5 per cent of the outstanding shares with voting rights) allows to do the payment with shares of listed companies. Nevertheless, Colombian regulation requires that at least 30 per cent of the consideration must be offered and paid in cash.

In any case, the minimum bid allowed is for 5 per cent of the outstanding shares with voting rights of a listed company

Statutes and regulations

What are the main laws and regulations governing business combinations and acquisitions of publicly listed companies?

The main Colombian laws and regulations for business combinations and acquisitions of publicly listed companies are:

  • Law 964 of 2005 (Capital Markets Statute); and
  • The Decree 2555 of 2010 (unified financial and capital markets regulation).

Additionally, operative guidelines coming from the Colombian Stock Exchange should apply and antitrust laws, such as Law 155 of 1959, Decree 1302 of 1964, Decree 2153 of 1992, Law 1340 of 2009 and the guidelines of the Superintendence of Industry and Commerce, specifically the Unified Circular and Resolution 10930 of 2015, among others may become relevant in the event that antitrust clearance proceedings are required.

Cross-border transactions

How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?

Cross-border transactions have the same benefits and may be structured under the same circumstances as local business combinations. The foreign investment and exchange regulations provide the respective legal framework for foreign investors. Foreign investors are generally allowed to enter into transactions in Colombia by investing in all industries, except for activities related to national security; processing and disposal of toxic, hazardous or radioactive waste not originated in the country; and private security and surveillance (which in some specific cases such as private security companies can only be provided by legal entities whose equity holders are Colombian individuals, and in others such as valuables transportation foreign individuals or companies can also be equity holders); and legal entities operating open television services (for which foreign investment cannot exceed 40 per cent of the company’s capital stock). Certain regulatory conditions or approvals may apply, for example, for foreign investment in financial institutions.

Whenever a cross-border transaction is structured, the only additional and particular requirement for foreign investors is that they must register their investments with the central bank after the transaction takes place (the manner to register the investment may depend on the transaction to be completed by the foreign investor). The purpose of this registration is to obtain the proper exchange rights for their investment, such as drawing rights abroad over net profits and capital reimbursements.

Sector-specific rules

Are companies in specific industries subject to additional regulations and statutes?

The following industries are subject to additional regulations:

  • financial, insurance and banking: Decrees 633 of 1993 and 2555 of 2010 and the regulations from the Treasury Ministry and the Financial Superintendence;
  • television industry: Laws 14 of 1991, 182 of 1995, 335 of 1996, 680 of 2001 and 1507 of 2012 and the regulations of the National Television Agency, Communications Regulation Authority and the Spectrum National Agency;
  • aviation industry: Commerce Code and Colombian Aeronautical Regulations;
  • health services: Laws 100 of 1993, 1122 of 2007 and 1438 of 2011 and the regulations from the Ministry of Health and Social Protection;
  • agricultural industry: Laws 101 of 1993 and 811 of 2003 and the regulations from the Agriculture Ministry;
  • public services: Laws 142 of 1994, 143 of 1994 (electricity) and 689 of 2001 and the regulations from the Superintendence of Public Services; and
  • telecommunications (other than the television industry): Law 1341 of 2009 and the regulations from the Information and Communication Technologies Ministry and the Communications Regulation Commission.

Companies holding governmental concessions or licences must follow the necessary proceedings for amending said concessions or licences if as a result of a business combination the holder of the concessions or licence changes.

Transaction agreements

Are transaction agreements typically concluded when publicly listed companies are acquired? What law typically governs the agreements?

In addition to the laws and regulations described in question 2, as a general principle, public tender offers in Colombia are governed by Colombian law. Pre-bid agreements may be entered into for purposes of regulating and obliging a party to carry the bid and the other to accept (notification of such agreements must be given to the Superintendence of Finance and the Colombian Stock Exchange).

Filings and disclosure

Filings and fees

Which government or stock exchange filings are necessary in connection with a business combination or acquisition of a public company? Are there stamp taxes or other government fees in connection with completing these transactions?

Regarding the combination or acquisition of a publicly listed company, a formal bid request from the entity that intends to carry a public tender offer shall be filed before the Financial Superintendence. This request should be filed along with the documents setting forth its intention to make a public tender offer and should include the following:

  • the offering memorandum;
  • the draft of the public tender offer advertisement;
  • the board of directors’ resolution authorising the interested party to submit the public tender offer;
  • the certificate of incorporation and good standing issued within the past three months;
  • the copy of the clearance required from any other Superintendence (for example, the Superintendence of Industry and Commerce), if applicable;
  • the representation made under oath by the interested party stating that there are no other pre-agreements different from those disclosed in the offering memorandum; and
  • any other documents or additional information requested by the Financial Superintendence in order to verify that the legal requirements are duly satisfied.

Additionally, a copy of the disclosed pre-bid agreements should be filed, along with the other public tender offer documents.

Furthermore, a filing before the Superintendence of Finance must also be made for the approval of share purchases of 10 per cent or when a shareholder with a 10 per cent interest acquires any number of additional shares of a financial, insurance or stockbroker institution.

Finally, an antitrust analysis should be carried out in order to determine if the business combination or acquisition has to be approved or notified to the Superintendence of Industry and Commerce.

Information to be disclosed

What information needs to be made public in a business combination or an acquisition of a public company? Does this depend on what type of structure is used?

Under applicable securities regulation, listed companies are generally required to inform the market, through the Superintendence of Finance, all material information in a truthfully, clearly and in timely manner. Any events related to the merger or acquisition of a company must be reported in this regards.

Disclosure duties entail all material information that would have been reviewed by a prudent and diligent expert to decide whether to buy, sell or keep certain securities related to the proposed business combination.

Disclosure of substantial shareholdings

What are the disclosure requirements for owners of large shareholdings in a public company? Are the requirements affected if the company is a party to a business combination?

In all mergers and spin-offs, all of the shareholders have an inspection right to review the basis of the operation, such as the merger agreement, the spin-off project, the appraisal of the companies and the financial statements. Individuals or a group of individuals representing one beneficial owner who intends to acquire 25 per cent of any given listed company are required to make a public disclosure of their intent through the public tender offer process. Likewise, a beneficial owner that holds 25 per cent of a listed company is required to make a public disclosure of the intent to acquire 5 per cent or more of the company through a public tender offer. During the six months following the disclosure of a public tender offer, any stockholder may solicit the offeror to provide information pertaining to the proposal and request the offeror to acquire their stock.

Special rules apply to concurrent offers and exchange offers. For instance, in the event that 100 per cent of the stockholders have previously agreed in writing to sell or buy, the public tender offer mandatory procedures would not be applicable. Regarding concurrent offers, see question 9 about unsolicited transactions.

Directors’ and shareholders’ duties and rights

Duties of directors and controlling shareholders

What duties do the directors or managers of a publicly traded company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination or sale? Do controlling shareholders have similar duties?

Directors or managers shall guarantee that shareholders have the right to inspect the company’s records before a shareholders’ meeting in order to approve the above-mentioned business combination or whenever financial statements of the company must be approved. Also, the agenda of shareholders’ meetings where a merger, spin-off or changes in the type of legal entity must include specific consideration of the withdrawal right to which dissident or absent shareholders are entitled if the transaction lessens their economic rights or implies higher liability for such shareholders. In these cases, the board of directors shall take into account the best interests of the company when making its recommendation.

The directors and managers must protect the rights of the minority shareholders whenever a shareholders’ meeting decision may unjustly affect their rights. The same duty is imposed on the controlling shareholders. Corporate decisions, which may be considered as an abusive exercise of the majority or minority rights, can be voided by the Superintendence of Companies. Exercising the shareholders’ rights with the intent of harming the company or another shareholder may also be declared as an illegal act by the Superintendence of Companies. Parties harmed by the conducts of other shareholders are allowed to file claims before the Superintendence of Companies to seek compensation for any damages they suffered. Additionally, and pursuant Law 446 of 1998, it is possible for minority shareholders to initiate a proceeding to protect their rights before Superintendence of Finance, whenever these have been breached by the managers, directors or other shareholders.

Approval and appraisal rights

What approval rights do shareholders have over business combinations or sales of a public company? Do shareholders have appraisal or similar rights in these transactions?

As a general rule, only mergers, spin-offs, capital reductions and changes in the type of the corporate structure and the financial statements required for initial public offers must be approved at a shareholders’ meeting. In these cases, the general principle is that the quorum and majorities are the following:

  • quorum: two or more shareholders jointly accounting for over 50 per cent of the company’s shares must be present or represented at the shareholders’ meeting in order to validly undertake any discussion pertaining to the company’s affairs. Except for listed companies, the by-laws may establish a higher quorum for the approval of such decisions; and
  • majority: shareholders may approve a business combination when the majority of the votes at the meeting are affirmative.

Nevertheless, the by-laws or shareholders’ agreements may require the shareholders’ approval for other types of business combinations.

In the event of mergers of financial institutions, minority shareholders who hold no less than 5 per cent of the outstanding shares of one of the intervening companies may request an independent appraisal of the companies involved, which shall be mandatory for the companies involved, unless at least 85 per cent of the outstanding shareholders of each intervening company vote against it. In this last case, the shareholders who did not approve the majorities’ appraisal of the shares shall be entitled to a withdrawal right and their shares shall be paid at the price set forth in the independent appraisal from a capital reduction or reacquisition of the company’s own shares, under the terms and conditions set forth by the Superintendence of Finance. Whenever the combination involves a capital contribution in kind, the appraisal of the contribution shall be approved at the shareholders’ meeting.

Completing the transaction

Hostile transactions

What are the special considerations for unsolicited transactions for public companies?

Managers in Colombian listed companies do not hold the right to block a takeover transaction, and as a general rule do not play any active role in a given transaction; instead the choice to sell share relies mostly in the shareholders’ decision. Therefore, hostile transactions are not generally applicable in Colombia. During a public tender offer proceeding, it is legally possible for other interested parties to compete by submitting a new public tender offer, in which case such a competing public tender offer must comply with the same requirements as to the original public tender offer. Pursuant to Decree 2555 of 2010, the following are the requirements that should be met by a competing public tender offer:

  • the offeror of a competing public tender offer cannot be the same beneficiary as the one of the original public tender offer;
  • the first advertisement of the competing public tender offer should be published at least two days before the expiration date of the acceptance period of the original public tender offer;
  • the competing public tender offer cannot be for a lesser amount or lesser price than the original public tender offer;
  • the competing public tender offer must be better than the original public tender offer. It is understood as a better offer if the price is at least 5 per cent higher or if the amount of stock to be acquired is at least 5 per cent higher or, if the price or the amount of stock is equal to that in the original public tender offer, if the minimum number of shares to be accepted to trigger the public tender offer is less than the minimum amount in the original public tender offer;
  • if the original public tender offer contemplates consideration in securities, then the competing public tender offer may offer cash and securities; likewise, if the original public tender offer contemplates consideration in cash, then the competing public tender offer can only offer consideration in cash;
  • if the original public tender offer contemplates upfront payment, then the competitor has to offer the same form of payment; on the other hand, if the original public tender offer contemplates payment in instalments, then the competing public tender offer has to present the payment under the same terms or better;
  • once the first advertisement of the competing offer is published, any acceptance already made to the original public tender offer will be automatically made to the competing offer; and
  • in any case, the interested party may at any time improve the conditions of the original public tender offer, following the same procedure for competing offers.
Break-up fees - frustration of additional bidders

Which types of break-up and reverse break-up fees are allowed? What are the limitations on a public company’s ability to protect deals from third-party bidders?

In general, break-up fees would not be permitted in Colombia, if the agreement or provision obstructs the right of the shareholders to accept competing public tender offers by third parties. Nevertheless, the Superintendence of Finance, when consulted on the matter, has not been slow to accept break-up fees when the shareholders are allowed to sell, and end up selling their shares, to a competing bidder.

Government influence

Other than through relevant competition regulations, or in specific industries in which business combinations or acquisitions are regulated, may government agencies influence or restrict the completion of such transactions, including for reasons of national security?

In general, governmental agencies cannot intervene in, influence or restrict the completion of a business combination.

The Superintendence of Companies or the Superintendence of Finance, as applicable, may restrict a merger or a spin-off whenever the applicable procedures are not abided by, and creditors or minority shareholders’ rights are affected.

Under securities regulations, the Superintendence of Finance may influence or restrict the completion of a business combination whenever market transparency may be affected. Furthermore, the Superintendence of Finance may block mergers among financial institutions if such a transaction affects the public interest or the financial system’s stability. Additionally, pursuant the bankruptcy statute, the Superintendence of Companies shall approve certain transactions that may involve business combinations.

Foreign investment regulations may be applicable in very specific scenarios, taking into account that that in Colombia, foreign investment is allowed in all sectors of the economy with the exception of the following: (i) activities related to national security; (ii) processing and disposal of toxic, hazardous or radioactive waste not originated in the country; (iii) private security and surveillance (which in some specific cases such as private security companies can only be provided by legal entities whose equity holders are Colombian individuals, and in others such as valuables transportation foreign individuals or companies can also be equity holders); and (iv) legal entities operating open television services (for which foreign investment cannot exceed 40 per cent of the company’s capital stock).

In the event a business combination violates such prohibition, the transaction could be considered null and void. Additionally, in certain telecommunication markets, in which the use of the electromagnetic spectrum is licensed by the state, combination may require divestment of licences if, by virtue of the transaction, the thresholds of the maximum licensed spectrum are exceeded.

Conditional offers

What conditions to a tender offer, exchange offer, mergers, plans or schemes of arrangements or other form of business combination are allowed? In a cash transaction, may the financing be conditional? Can the commencement of a tender offer or exchange offer for a public company be subject to conditions?

Public tender offers shall be addressed to all the shareholders of the same class of shares of the target company in equal conditions. The only condition for the acceptance of a public tender offer that can be imposed is that the acceptance is made for ‘all or none of the shares’, in which case the acceptance of the public tender offer is made only if all of the shares from the offeree are acquired by the offeror.

Acquisitions through a public tender offer may be paid in cash, in foreign currency (subject to Colombian foreign exchange regulations) or with securities.

In cash acquisitions, the availability of financing would not be allowed as a condition to a cash offer. Furthermore, before presenting the public tender offer, the interested party shall grant collateral, as additional security for performing its obligations under the public tender offer. If the consideration is in cash, then the collateral may be a cash deposit in a Colombian or a foreign bank, a standby letter of credit, a performance or blanket bond issued by an insurance company, treasury bonds issued or guaranteed by the Republic of Colombia or the assignment of rights in a collective investment fund. The beneficiary of the collateral shall be the stock exchange.

Pursuant to Decree 2555 of 2010, when the consideration for the acquisition (through a public tender offer) consists of securities, they must be free of any liens or limitations of ownership and must be pledged as collateral for satisfaction of the payment. Further, in these cases in which the payment of the acquisition is to be made with securities, at least 30 per cent of the shares to be acquired through the public tender offer must be offered to be paid in cash.

Financing

If a buyer needs to obtain financing for a transaction involving a public company, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?

Financing, whenever applicable to these types of transactions, is in most cases a contractual matter. Hence, financing is not generally dealt within the transaction documents as such. As a general rule, financing comes from third parties such as banks and would, most of the time, come down to the negotiation and execution of a credit agreement. When a credit agreement is executed by the purchaser of shares, the purchaser may agree to pledge the shares.

The financing of the acquisition of shares of Colombian companies may be made either by foreign financial institutions or by Colombian financial institutions pursuant to Colombian foreign exchange regulations. If the financing is made by a Colombian financial institution for the acquisition of shares of the same financial institution or of a third financial institution, it can only be made provided that the shares are offered in an initial public offer or in a privatisation process and that the financing is made over other securities that hold a value of at least 125 per cent of the financed amount.

Taking into account that financing is generally regulated by contract, the obligations that may be agreed by the seller to assist the purchaser’s financing must also be included as contractual matters. As a general practice, parties agree that the seller must collaborate with the purchaser to obtain the financing by supplying the information of the target company or of the assets that may be required by the financial entity.

Finally, Law 1676 of 2013 sets forth a legal framework for movable guarantees, which provide higher access to financing and may be used for financing business combinations. This law and its regulation creates a simple and non-expensive registry for movable securities; provide publicity that makes a security effective against third parties; allows for securities to be granted under different priorities and to different creditors; and, to establish a direct payment to the secured creditor or a simplified enforcement proceeding of the movable security by a notary public, a chamber of commerce or a judicial instance.

Minority squeeze-out

May minority stockholders of a public company be squeezed out? If so, what steps must be taken and what is the time frame for the process?

A majority shareholder is obliged to offer the shares of the minority shareholders when the majority shareholder holds more than 90 per cent of the shares of the listed company or when delisting the company.

Also, when delisting the company and some of the shareholders voted against delisting or did not attend the shareholders’ meeting in which the delisting was approved, they may solicit a mandatory public tender offer addressed to them, which must be carried within three months of the shareholder meeting. In order for a delisting to become effective, this mandatory public tender offer must be completed.

Waiting or notification periods

Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations or acquisitions involving public companies?

In public tender offers a minimum period of 10 business days and a maximum of 30 business days should be granted to stockholders for the acceptance of the public tender offer.

Other considerations

Tax issues

What are the basic tax issues involved in business combinations or acquisitions involving public companies?

Income tax is exempted in the event of the transfer of shares listed on the stock exchange whenever the amount of shares transferred does not exceed 10 per cent of the company’s outstanding shares.

However, if the shares were held for more than two years, capital proceeds tax over its profits will be of 10 per cent. If the shares were held for less than two years, then the profits are charged with income tax at the rate determined on a yearly basis, which for 2019 is 33 per cent.

If the seller is a tax resident in Chile, Spain, Canada, Mexico, Switzerland, South Korea, India, Portugal, the Czech Republic or countries of the Andean Community of Nations (Ecuador, Peru and Bolivia), by applying double taxation treaties, lower rates may apply. In any case, if the seller is an entity domiciled abroad, it would be required to file a special income tax return and pay the corresponding tax for the transfer of the shares, if any, within one month of the date on which the transfer takes place. This filing is mandatory regardless of the capital gain or loss arising from the transfer.

An income withholding tax on the gross income may apply, if the buyer is a Colombian resident. Whether certain conditions are fulfilled, corporate reorganisations such as capitalisations in kind, mergers and spin-offs may be treated as a tax-free transaction.

Labour and employee benefits

What is the basic regulatory framework governing labour and employee benefits in a business combination or acquisition involving a public company?

Once a public tender offer takes place, the employees may continue as employees of the resulting company and there are no particular requirements for the target company to inform or consult its employees about the public tender offer.

Restructuring, bankruptcy or receivership

What are the special considerations for business combinations or acquisitions involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?

For combinations or acquisitions involving a target company in an insolvency proceeding, and in the event that the target owns shares not registered in the National Registry for Securities and Issuers - RNVE, the target may request the Superintendence of Finance to temporarily subscribe those shares in the RNVE in order for them to be sold through an initial public offer. Since this procedure is exclusively to sell these securities, it is not allowed to register such securities before the Colombian stock exchange and the registry before the RNVE will only last six months.

Pursuant to Law 1116 of 2006, if the target company is undergoing restructuring proceedings, no sale of assets, going concerns, spin-offs or mergers are allowed without the previous authorisation from the relevant superintendence. Once the restructuring agreement is in force, it shall be reviewed to ascertain whether there are limitations to carrying out business combinations. Special consideration must be given in the case of a merger, as the resulting company will be responsible for all the obligations under the agreement with the target’s creditors.

Furthermore, the restructuring committee will also have powers over the resulting company, and the shareholders, managers and directors will be subject to the codes of conduct adopted with the restructuring agreement. During restructuring proceedings in case of a merger or a spin-off the following rights are suspended: (i) withdrawal rights of the shareholders; special provisions for bondholders; and (ii) the rights of the creditors for requesting better guarantees. In addition, in the case of sale of a going concern the creditors may not oppose to the sale.

In the event that the target company has been declared in dissolution, a merger may only take place within 18 months from the date of dissolution, and the absorbing or resulting company shall have the same corporate purpose as the absorbed company. Furthermore, a new company may be incorporated in order to purchase the assets of the company under dissolution and continue with the same business. If the business is under mandatory liquidation, no special considerations should be accounted for in the sale of assets, provided that the deal is made on an arm’s-length basis.

Anti-corruption and sanctions

What are the anti-corruption, anti-bribery and economic sanctions considerations in connection with business combinations with, or acquisitions of, a public company?

Law 1474 of 2011 enacted the anti-corruption statute that contains several provisions sanctioning corrupt practices. This statute created the criminal offence of ‘private corruption’ that sanctions any person that bribes a director, employee or adviser of a company, in order to favour itself or a third party, against the interest of the company, with four to eight years of prison and a fine of 10 to 1,000 minimum legal monthly wages. In addition, the director, employee or adviser who accepts the bribe will be sanctioned with the same penalty and fine. In the case of the conduct representing economic damage to the company, the crime may be punished with prison terms of between six and 10 years.

Furthermore, pursuant to the anti-corruption statute, the criminal offence of ‘disloyal management’ for the director, shareholder, employee or adviser of a company that for its own benefit or benefit of a third party, abuses its duties, and commits fraud in order to dispose of the assets of the company or to create obligations for the company, shall be sanctioned with four to eight years in prison and a fine of 10 to 1,000 minimum legal monthly wages. The use by employees, advisers, directors or managers of a company’s privileged non-public information known because of their office or duties, in order to profit from it, either for themselves or for third parties, shall be sanctioned with one to three years’ imprisonment and a fine of five to 50 minimum legal monthly wages. The same penalty would be applicable to any person that due to its profession or office, obtains profit for itself or for third parties, by using privileged information for the negotiation of securities, if such information is not publicly known.

In addition, the Anticorruption Statute provides an absolute prohibition on former public officials managing private interests. Therefore, it is forbidden for public officials, for up to two years after leaving public office, to directly or indirectly provide advice or represent the interests of companies regarding matters related to the public entity to which the former public official rendered its services, or that were subject to inspection, surveillance, control or regulation by the public entity to which the former public official rendered its services. This prohibition is indefinite with respect to particular matters that were decided by the former public official.

In early 2016, Colombia enacted Law 1778 of 2016 by which the OECD standards against bribery and corruption were adopted. Under this new law, bribery (including transnational bribery) and corrupt acts can be punishable not only as a criminal offence, but also through an administrative proceeding conducted by the Superintendence of Companies. The new sanctions provide for fines to companies involved in local and transnational acts of corruption of up to 200,000 times the minimum monthly wage (in 2019, approximately 165 billion pesos), and can even lead to the suspension or the cancellation of the corporate chart.

Update and trends

Key Developments

What are the current trends in public mergers and acquisitions in your jurisdiction? What can we expect in the near future? Are there current proposals to change the regulatory or statutory framework governing M&A or the financial sector in a way that could affect business combinations with, or acquisitions of, a public company?

At the present time, there are no current proposals to change the regulatory or statutory framework governing M&A or the financial sector in a way that could affect business combinations with, or acquisitions of, a publicly listed company. However, Colombia’s fintech industry is growing and increasing rapidly, proposing new structures to approach different business transactions, including the way the stock exchange market is approached, and consequently the ways a business combination or acquisition of a public company may be approached.

Recently, in 2018, the Decree 1357 of 2018 was issued, creating a new type of securities: equity and debt crowdfunding securities that are not considered part of the stock exchange market and are particularly traded and meant to finance start-up companies. In the meantime, these securities have not been yet issued and for this we cannot foresee how these equity securities may impact the way we understand business combinations or acquisitions and if we may or may not consider these type of businesses public or not.