CMS Expert Guide to Public Takeovers in Brazil

Yes, takeovers are regulated by the Brazilian Securities and Exchanges Commission (“CVM”), specifically by CVM Resolution No. 85/2022 (“Main Resolution”). 

• Company de-listing; 
• increase of the controlling shareholder’s equity participation; 
• transfer of control; and 
• acquisition of control. 

Yes, the takeover offer must be intermediated by a brokerage firm or securities dealer or financial institution with an investment portfolio hired by the offeror. This adviser: 

• may prepare an appraisal report of the target company (except in the case of a tender offer for the sale of control); 
• guarantee the sufficiency and quality of the information made available to the market during the tender offer process; 
• in certain situations, ensure the financial clearing of the tender offer and payment of the purchase price. 

In addition, whenever a tender offer needs to be registered with the CVM such registration is made through such an adviser. 

A mandatory offer is required whenever it involves a: 

• company de-listing; 
• increase of the controlling shareholder’s equity participation; 
• transfer of control; and 
• acquisition of control. 

Tender offers are voluntary, that is, the offeror may proceed according with the rules set forth in the Main Resolution when they involve the acquisition of control of a publicly traded company. When choosing to proceed in this manner, the offeror must comply with the rules set forth in the Main Resolution. 

For a company de-listing, if all the shareholders of the company agree in writing or unanimously approve a resolution in a shareholders meeting, they can request the dismissal of the mandatory offer requirement from the CVM. 

Tender offers in relation to a company de-listing: this option is taken when the company or the controlling shareholders intend to cease the listing/trading of the company’s shares in the stock exchange market.  In such a case, the company or the controlling shareholder must make a public takeover offer for the acquisition of the target company’s shares, which needs prior approval by shareholders holding 2/3 of the outstanding shares of the target company. If, at the end of this tender offer, there are still outstanding shares representing less than 5% of the total shares issued by the target company, then the outstanding shares can be redeemed for the purchase price set in the takeover offer announcement (compulsory buy-out). 

Currently there are no Brazilian laws allowing schemes of arrangements for purposes of a takeover offer. 

Potential takeover offers must be kept secret before they are announced to the market. If the potential takeover offer is disclosed before it is concluded or before the intended date for its announcement, then the potential offeror must: 

• disclose the tender offer instrument; and 
• inform the market if the offeror intends to make the tender offer or is considering making it, although not certain if it will be made. 

In addition to that, the offeror may request that the CVM treats information and registration documents in relation to the tender offer as confidential, by presenting the reasons why the disclosure of such information or documents to the public may offer risks to the legitimate interests of the issuer, offeror or third parties. 

Yes. Whether or not subject to registration before CVM, every tender offer must be made available to all holders of shares of the target company, ensuring that they will all be treated equally. It must be made within 10 days after its registration with the CVM in case of a tender offer which is subject to prior registration with CVM. The tender offer must be published on the company’s web page, in the CVM system and in local newspapers. 

The announcement of a tender offer is binding on the offeror, provided that it can be subject to certain adjustments, such as in respect of the offered price per share. Conditions may be set in the offer, provided that they are not related to, directly or indirectly, actions of the offeror. Some common conditions are: 

• for no material adverse effects to compromise the target company’s results or price of the shares on the stock exchange; 
• the acceptance of a minimum number of shareholders in case of a tender offer for the acquisition of control of the company; 
• no new laws or rulings must be enacted forbidding the tender offer. 

The payment for the shares acquired through a tender offer can be made in cash, in assets or in other securities. The offeror must have sufficient funds to pay for the shares subject to the takeover offer, and in some cases the adviser must guarantee the payment of the purchase price (in cases where the offeror may be forced to acquire all the shares of a same type and class). 

There are some criteria set forth in the Main Resolution for the appraisal of the shares, which can be according to discounted cash flow, net asset value of market multiples (like EBITDA), but not its minimum or maximum values. 

One of the principles of the Main Resolution is that all shareholders must be treated equally according to the type and class of their shares. There can be differences in case of different types or classes of shares, but the same types and classes of shares must receive the same price.  

In an acquisition of control, the offeror must make a tender offer for the acquisition of the remaining shares of the company (not part of the controlling stake) in which he may offer to pay for them 80% of the price he is paying for the shares that are part of the controlling stake. 

There is no obligation for the target company to provide due diligence information about it, other than that information which is already public (for instance the company’s annual financial statements announced to the market). Nonetheless, as a general principle, in case the target company provides information to an offeror it must also provide the same information to other potential offerors, as a matter of good faith. 

When the company is not an offeror there are restrictions on it entering into any agreements with the offeror, otherwise this could be considered an abuse of power by a controlling shareholder (as the case may be) or an act performed by an administrator with a conflict of interest. The target company may agree with the offeror on how to fulfil any requests from the CVM or other public bodies in order for the tender offer to be duly realised, but not aiming at deal protections for the target company and/or the offeror. 

No. The officers and directors of the target have a fiduciary duty to act in the company’s best interests, which are not necessarily always aligned with the interests of the offeror. However, the target company’s managers must comply with their duties in order for the tender offer to comply with the requirements of the Main Resolution, such as ensuring that its terms are published on the company’s website and providing the information required by the CVM to register the tender offer. 

There are not many defences the target company can use in the case of a tender offer which is made in accordance with the rules set forth in the Main Resolution, except to seek any remedies in case of breaches, by the offeror, of such rules. There are, however, protections for minority shareholders, such as the guarantee of same treatment for their shares (considering the aspects detailed in Q11) and the need for approval from shareholders holding 2/3 of the company’s shares in case of a takeover for a company de-listing. Also, in case of a tender offer for the de-listing of the company, the minority shareholders holding at least 10% of the outstanding shares can require the calling of a shareholders meeting to discuss the valuation of the shares and require its review. 

If the offeror, without making a tender offer, acquires shares representing more than 1/3 of the outstanding shares of the company of the same type and class, then he/she/it must make a mandatory tender offer for the acquisition of all the remaining shares of that same type and class. 

Also, if an offeror enters into a transaction (not a tender offer) for the direct or indirect acquisition of control over a company, this transaction must necessarily be subject to the conclusion of a tender offer by the offeror for the acquisition of the remaining shares with voting rights of the target company. 

During the tender offer, the offeror is prohibited from buying or selling shares of the target company. 

The target company shareholders can accept the tender offer once it is formally announced. 

During the tender offer, the offeror is prohibited from buying shares of the target company, so no separate agreement can be made by the offeror with the target company shareholders outside of the offer process. 

During the tender offer process, the following dealings must be disclosed: 

• any agreements, preliminary agreements, options, letters of intent or other documents regarding transactions involving securities of the target company made by the offeror or parties related to the offeror; 
• dealings by shareholders of the target company who hold, at least, 2.5% of the shares of a certain type and class on the target company, which increase or decrease by more than 1% of their equity participation in the target company, or any agreements, preliminary agreements, options, letters of intent or other documents regarding transactions involving an increase or decrease in more than 1% of their equity participation in the target company. 

Where the offer is implemented by way of a tender offer: 

D: Announcement to the market of the intention to make a tender offer 

D+30: Filing of the tender offer’s registration request with the CVM (regarding offers that must be registered with the CVM) 

D+90: Analysis of the tender offer request and its approval by the CVM (analysis made by the Superintendence of Securities Registration) 

D+100: Announcement to the market of the tender offer’s terms and documents regarding the offer 

D+130 to 145: auction for the purchase of the shares subject to the tender offer 

• Agreement with the adviser; 
• Appraisal report of the target company; 
• Tender Offer instrument (with the offer’s terms and conditions), pursuant with the requests made by the CVM; 
• For tender offers regarding increase of the controlling shareholder’s equity participation or transfer of control, documents showing the prior acquisitions of shares by the offeror. 

A competing tender offer can be launched and must observe the same rules applicable to any existing tender offer. It must be announced or be filed for registration with the CVM (when such registration is required) at least 10 days before the date set for the purchase of the shares subject to the tender offer it is competing with. The price per share of the competing tender offer must be at least 5% higher than the one announced by the tender offer it is competing with. 

The timetable of events of the two tender offers must aligned, considering that the decisions and acts of one influence the other, especially the review of the price per share offered by each takeover offer. 

The tender offer can be adjusted to improve the conditions for the purchase of shares or to remove certain conditions set forth in the tender offer. Other changes will require the prior approval by the CVM for tender offers and be subject to registration with the CVM. 

The tender offer can be withdrawn with the prior approval by the CVM for tender offers subject to registration with the CVM. Also, for tender offers aiming at de-listing the target company, if there is a review of the price of the shares due to a new valuation request made by the minority shareholders (according to the procedure mentioned in Q14), the offeror can also require the withdrawal of the tender offer, subject to the approval by the CVM. 

Yes if, at the end of a tender offer for the target company de-listing, there are still outstanding shares representing less than 5% of the total shares issued by the target company. In this case, these shares can be redeemed for the purchase price set in the takeover offer announcement. 

The offeror cannot make any new tender offers regarding the target company shares subject of the previous tender offer for 1 year as from the end of the offer period for the tender offer. 

The target company de-listing may only be granted by CVM if preceded by a de-listing tender offer, formulated by the controlling shareholder or by the target company itself, and having as its object all the shares issued by the target company, which observes the following requirements: 

1. the share price must be fair and observe the valuation requirements of the Main Resolution; and
2. shareholders holding more than 2/3 (two thirds) of the outstanding shares must accept the tender offer or expressly agree with the de-listing, considering as outstanding shares, for this purpose, only the shares of the shareholders who expressly agree with the de-listing and the shares of the shareholders who agreed to sell their shares in the tender offer.

Having concluded these procedures, a target company can request its de-listing with the CVM.