Proxy solicitation and shareholder director nominations in Brazil: a comparative analysis of instrução CVM N. 481/2009
| Autor | Bruno Robert |
| Páginas | 76-104 |
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Concentrated1 control is the history in Brazil and it is still reality. The vast majo-rity of Brazilian companies is closely held and owned by an individual, or family, who is the absolute controller.
A different trend, however, may be identified among the publicly-traded cor-porations in the BOVESPA's Novo Mercado,2 a premium segment with higher cor-porate governance standards.3
Out of the 106 companies4 listed on the Novo Mercado, at least 65 do not have majority control. And of these companies, the largest shareholder owns on average 26.23% of the shares, which shows an un-precedented level of ownership dispersion for Brazilian standards.5
This is an impressive number even if compared exclusively with the universe of listed corporations, in which the largest shareholders owns on average 71% of the voting shares.6
The level of dispersion seen among the companies in the Novo Mercado con-veys very important information because these companies, even though small in number,7 represent an important stake of the Brazilian market.
Their aggregated market value ex-ceeds US$300 billion (R$ 544 billion) or
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23.7% of the total BOVESPA capitaliza-tion in January, 2010.8 That value is even more representative considering that Pe-trobras and Vale do Rio Doce, the two most valuable Brazilian companies, which are not traded on the Novo Mercado, together have a market value of US$ 317 billion (R$ 572 billion).9
More than a sensitive part of the coun-try's industry, those companies are also mainly responsible for keeping the Brazilian capital market in motion. The Novo Mercado is currently the hallmark of the nation's securities market, being at one time its strongest marketing element, the place where most of the investors are turn-ing to, and a stage on which the country's corporate personality is being defined.
It means that a trend of controlling power dispersion among the companies in the Novo Mercado is much more than a simple economic curiosity. It means that a significant part of the Brazilian corporate market is marching toward a reality that is structurally different than that by which the rest of the country's companies are sur-rounded.
In a nation where the corporation law is defined exclusively at a federal level, taking into account the historic patterns of its corporate environment, and where all the lawmakers and judges are culturally used to the concentration establishment, such an ownership dispersion trend puts the stability of the capital markets in line for a collision with the current legal sys-tem.10
And the issue is no longer merely the-oretical.
In 2006, the Brazilian chilled and fro-zen food producer Sadia issued a public bid for purchasing the control directly from shareholders of its main competitor Perdigão. It was the first hostile takeover at-tempt in Brazil's history, made possible because, at the time, Perdigão was controll-ed by a group of pension funds represen-ting 49% of the company's voting stock. The bid, however, was rejected by the mi-nority shareholders.
Three years later, in 2009, the Spa-nish Telefonica issued a public bid for 100% of GVT’s shares, challenging an amicable tender offer for the shares pre-viously made by the French company Vi-vendi. GVT’s largest shareholder had no more than 15% of the company's shares. The dispute was finally won by Vivendi, which acquired the control of GVT through a series of private agreements.
Neither case represented a major con-frontation with the current legislation, most-ly because of their particular outcomes.
The situation, however, has put regu-lators and academics on alert regarding the potential conflicts between the corporation reality and the legal system that may arise as a result of this first time ever attempt at dispersion in the Brazilian capital market.
Three main reactions, among others, can be mentioned to exemplify the fact.
First, in a recent paper, the Professor of the University of São Paulo, Eduardo Secchi Munhoz, argued that the current re-gulation regarding the acquisition of control in Brazil (specially Article 254-A of the Brazilian Corporation Law) works only
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in a concentrated market environment and has to be rethought in the face of the new reality of the nation's market. In accordan-ce with the author, the concept of sale of control, which is a key element of the rule, triggering a mandatory public bid for the non-controlling shares, is not always clear in a situation of ownership dispersion.11
The exactly same worry was stressed by the Securities and Exchange Commis-sionof Brazil's (CVM's) highly comment-ed decision in a case involving the Italian companies Telco and Olimpia, and the Brazilian company Tim. Telco acquired the control of Olimpia, which had indirect and minority control of Tim. By the majo-rity of votes, the CVM's commissioners decided that Article 254-A did not require, in that case, a public bid by Telco (the ac-quisition of Tim's control) for the non-controlling Tim's shares, mainly because there was no proper sale of control. Of the five commissioners, however, one defended that Article 254-A is only applicable to sa-les of majority control, two defended that it must be applied to any sale of control, and two did not opine about the matter.
The controversy shows how intricate the difference between a legislation used to concentration and the reality of dispersion can be. And how necessary a well-defined regulation to accommodate that new reality is.
In the CVM chairwoman's own wor-ds "the complexity ofthis case, the difficul-ty to characterize the existence or not of control, illustrates well the type ofchallen-ge that awaits us".12
Second, the so called Novo Mercado reform, which among other modification, intends to explicitly considerthe possibility of offerings and control acquisition in companies without defined controlling share-holder. The Novo Mercado governing do-cuments will oblige the companies adhe-rents to accept new rules concerning acquisition of control and adoption of anti-take-over defenses that differentiate situations where there is defined control and where there is not.13
And third, showing exactly how well-acquitted the Brazilian regulators are about the dispersion ownership scenario, in December 2009, the CVM issued the first ever regulation about proxy solicita-tion in the country: the Instrução CVM n. 481/2009.
The new rule, enacted under the CVM regulatory power is the definitive recogni-tion that the Brazilian legal structure can no longer avoid the market tendency of ownership pulverization.
Article 126, § 2o of the Brazilian Corporation Law (Federal Law n. 6.404/1976) gives express authority to the CVM on re-gulating proxy solicitations.
That authority, however, had never been used until the end of 2009, more than thirty years later. Consequently, the Brazilian market has never had a specific regulation of proxy solicitation.
Since the corporate market in Brazil kept its historical patterns of ownership concentration, without any exception until recent years, the lack of a regulation on the subject has not had any important impact sofar.
The new trend of ownership dispersion discussed above, however, pushed the CVM to enact the first ever rule on proxy
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solicitation in Brazil. The proposal was is-sued for public comments in April 2009 and the final rule was announced in De-cember of the same year.14
As it is explained in the proposal, the importance of Instrução CVM n. 481/2009 rises "as long as companies composed ex-clusively by voting shares, and in most cases without a majority controller, emerge inBrazil”.15
In this sense, the declared goal of the new rule is "to create a simple framework able to lower the cost of voting and tofaci-litate the shareholder participation on the corporation 's business oversighf,16
The Instrução CVM n. 481/2009 bin-ds only the corporations that are or should be registered before the CVM. In other words, the vast majority of Brazilian companies, which have no intention of having their securities publicly traded, are not subject to the new proxy solicitation regu-lation.
It covers, therefore, exactly the envi-ronment where the tendency toward pulve-rization of control and ownership is con-crete. It serves also as a path to an eventual amendment to the Brazilian Corporation Law regulating proxy solicitation for Brazilian closely-held corporations.17
Article 28 of the new CVM rule ex-pressly requires the inclusion in the company's proxy solicitation material of nominees to the board of directors indica-ted by minority shareholders owning at least 0.5% of the totality of the company's shares.18
There was no precedent or direct legal basis for the new requirement other than the...
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