A Q&A guide to public mergers and acquisitions law in Argentina.
The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; as well as any proposals for reform.
To compare answers across multiple jurisdictions visit the Country Q&A tool. This Q&A is part of the PLC multi-jurisdictional guide to mergers and acquisitions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/acquisitions-mjg.
There is currently a lot of uncertainty in the M&A market. Argentina's economic and regulatory environments are undergoing changes (for example, the introduction of new currency regulations) and investors are analysing the political and economic landscape to see how the market will react.
The energy sector, service companies in the oil and gas industry, banks, agri-business, automobile suppliers and consumer-oriented companies will be the most likely targets of an eventual wave of M&A.
During the past two years, M&A transactions were mainly carried out by small and medium-sized companies. Most of the transactions amounted to less than US$100 million (as at 1 March 2012, US$1 was about EUR0.74). Loans have been difficult to obtain and small and medium-sized companies have had to find other sources of finance to face a reduction in sales or to expand their businesses. Many companies are also reorganising their corporate structures to optimise their business and reduce costs.
The following transactions were completed during the last five years:
Compañia Financiera Argentina was sold to Banco de Galicia y Buenos Aires.
Huhtamaki Argentina was sold to American Plast y Dixie Toga.
Chevron sold its facilities in the province of Santa Cruz to Roch.
Loma Negra was sold to Grupo Camargo Correa.
Under the rules of the Argentine Securities Commission (Comisión Nacional de Valores) (CNV) (CNV Rules), all companies authorised to publicly offer their shares are subject to the mandatory tender offering regime, unless they expressly opt out of this regime in their bye-laws (see below).
Under the regime, anyone seeking to obtain direct or indirect control of a public company by acquiring a "significant interest" (an interest of over 35%) in the voting shares, pre-emptive rights, options, convertible notes or similar securities (added to such person's prior holdings), must file a public offering or securities exchange addressed to the holders of the shares (CNV General Resolution No 401/2002, incorporated to Chapter XXVII of the rules of such entity (General Resolution No. 368/01, as amended)).
For indirect mergers or acquisitions (that is, a merger by incorporation or acquisition of a company which holds the shares of the target), if the company incorporated or acquired is a holding company or its principal assets are the shares of the target, the tender offer must be launched in the same way as a direct acquisition of shares of the target. Otherwise, the mandatory tender offer is triggered only if the merger or acquisition entails the direct or indirect acquisition of 51% or more of the target company's shares.
If a public company wants to opt out of the mandatory tender offering regime, its bye-laws must state that it is a "company not subject to the optional statutory system for mandatory tender offering".
There are certain exceptions to the mandatory tender offering regime that allow control of a public company to be acquired by any legal means (example, public offer or legal merger). These include:
When the target has amended its bye-laws as described above.
Where the acquisition does not entail acquiring the control of the company (that is, the power to make any decision at the company's ordinary shareholders meetings or to appoint a majority of the company's directors).
Where the acquisition is an internal reorganisation or redistribution of securities among companies from the same economic group.
When the acquisition is made under an expropriation (section 19, Chapter XXVII, CNV Rules).
Where all shareholders of the target company agree to sell 100% of the company's shares (section 19, Chapter XXVII, CNV Rules).
Hostile bids are allowed. Under the CNV Rules, when a bidder makes a takeover offer, the target's board of directors (board) must prepare a detailed report on the public offering, outlining its views both for and against the offer. The report must expressly state whether there is any agreement between the target and the bidder, or between the bidder and the company's board, as well as additional requirements. The board can expressly give an opinion against the bid.
The main applicable regulations are:
Public Offering Law No 17,811.
Decree No 677/01.
Chapter XXVII of the CNV Rules.
Companies Law.
Public takeovers and mergers are regulated by the CNV. Depending on the circumstances and on the business activities of the company, it may be necessary to obtain approval from additional governmental entities such as the Central Bank and the Anti-trust Authority.
The information that is usually required in a recommended bid is similar to that required when undertaking due diligence before buying a private company. This includes:
The economic circumstances of the company (including annual and quarterly financial statements, loans and general debt pending, tax payments).
Adherence to laws and rules governing the company's activities (such as verification of published information and any ongoing procedures from governmental agencies).
Any current material contracts.
Main corporate matters affecting the company (such as verification of records and shareholders' registry).
The legal audit should be completed at the same time as due diligence carried out by other professionals, such as notaries public and accounting and financial advisors.
The information that is usually required in a hostile bid is similar to any other bid.
The CNV Rules regulate the main information that public companies must disclose to the capital markets. The information is published through the CNV website, and is open to the investor public in general. The CNV has introduced an easy and accessible way of searching public companies' information online, known as Autopista de la Información Financiera (AIF).
CNV requires publishing of, among other things:
Updated bye-laws.
Annual and quarterly financial statements.
Directory and shareholder's meetings' records.
Information about notes outstanding.
If the company has issued notes, the documents involved in the deal (prospectus, pricing supplement and offering memorandum).
Information about any material fact that could affect the negotiation and quoting of the company securities.
The following, among others, are under an obligation of secrecy until the bid is disclosed (section 7, Decree 677/01 and section 15 to 17 of Chapter XXI, CNV Rules):
Directors, managers, controlling shareholders and professionals involved in the target.
A person making a bid to purchase or swap securities.
Generally, any person who has information about an event that has not been publicly disclosed and that, due to its importance, may affect the underwriting or negotiations surrounding the bid.
Before making a tender offer, it is common to obtain various agreements with the target's key shareholders. The terms of the agreement should always comply with the company bye-laws and applicable regulations.
The Decree 677/011 and the CNV Rules establish different disclosure requirements that companies and certain shareholders must follow. These include informing the CNV of the main terms of the agreement immediately after it is concluded, and filing monthly reports on the changes in the shareholdings up to a specified percentage.
In these circumstances there are no disclosure requirements or restrictions. However, disclosure requirements in may apply if the changes in the shareholdings are above to a specified percentage(see Questions 6 and 7).
It is not common to have a formal agreement between the bidder and target.
It is not common to pay a break fee to the target or the bidder in any kind of bid.
Under the CNV Rules, a bidder can be required to give certain pledges or guarantees depending on the consideration that the bidder is offering to pay. The payment price is secured with cash, securities or through issuing a banking guarantee.
A public offer (including recommended and hostile bids) requires preparation of a prospectus by the bidder and an authorisation application to the CNV.
Having decided to tender the offer, the bidder must:
Immediately notify the target company and the CNV of the following:
the material conditions of the public offering, including the minimum and maximum quantities to be acquired, the proceedings to settle conflicts in case of offerings below or above the minimum, and priorities among the offerings to be received;
the identity of the bidder and its registered office;
the data on any interest in the target company's shares held by the bidder or any person acting in concurrence with it, or shares in respect of which they have a purchase option or an irrevocable sale commitment for their benefit, as well as the conditions of any such rights;
a declaration by the bidder's management that it has available economic resources to satisfy the offer.
Publish the announcement from the date of its filing with the CNV, under the terms and conditions provided for in the CNV Rules.
File the public offer application with the CNV within ten days of publication of the offering announcement. The filing must be accompanied by certain additional information and a public offer prospectus, as provided for in the CNV rules.
The public offer must be open for not less than 20 and not more than 30 days from the date of the CNV's authorisation. An additional term of at least five days and not more than ten days from the general closing date of the public offer term will be granted to the shareholders, even if it has adopted the maximum general term.
If a competing bid is launched after the initial tender offer term is expired, the initial bidder:
Has seven working days to confirm its offer conditions or to improve them.
Must raise the price or the value of the consideration previously offered by at least 5% from the previous price or value.
Must obtain authorisation from the CNV and disclose the new conditions of the offer through publication for at least one business day in the Buenos Aires Stock Exchange Gazette and for at least three days in a widely read newspaper.
The initial bidder can also abandon the tender offer previously made. If not, the terms of acceptance of the original offer are extended until the expiration of the term of acceptance of the competing bid.
A takeover offer usually contains the following conditions, among other things:
Terms of the bid.
Maximum and minimum percentages or quantities of securities which the bidder undertakes to acquire.
The identity and registered office of the bidder.
The means of payments and the terms on which the payment will be available.
The period of time that the offer is binding and how to accept the offer.
Pledges, if any, that will guarantee payments of the shares.
The relevant thresholds triggering the obligation to launch a mandatory tender offer to all of the company's shareholders include the following:
If the result of the acquisition is that the bidder holds an amount equal to or higher than 35% of the target's shares and votes, it must launch a tender offer to acquire at least 50% of the shares and votes of the target.
If the bidder holds at least 35%, but less than 51% of the target's shares and votes, and its purpose is to increase its participation by at least 6% of the target's shares and votes within a 12-month period, it must launch an offer to acquire at least 10% of the target's voting rights.
If the bidder holds an amount equal to or higher than 51% of the target's shares and votes, it must launch an offer to acquire 100% of the target's shares and votes.
A tender offer can be subject to certain conditions as long as they are previously noted in the announcement of the offer. These conditions could consist of:
A minimum amount of securities sold.
Requirement of authorisation from the CNV or other entity.
Approval of the offer by the target's shareholders' meeting or board.
The target's shareholders commonly receive a copy of the relevant offer documents including, among others:
Prospectus or offering memorandum describing the main terms and conditions of the offer (such as maximum and minimum percentages or quantities of securities which the bidder undertakes to acquire, conditions to which the bid is subject, identity of the bidder, registered office and so on).
Copy of the announcement of the offer.
Any document certifying the existence of a pledge.
Annual and quarterly financial statements.
Any documents that were filed with the CNV.
There are no specific requirements for a target´s board to inform or consult its employees about the offer.
See Question 2.
Currency is the most common form of consideration. However, exchange of securities or both currency and exchange are also used as forms of consideration. The CNV Rules establish certain requirements and restrictions related to each form of consideration.
Under the CNV Rules, the price must be fair, and certain guidelines must be followed to determine what the price will be, including the net value of the shares, the value of the company and the liquidation value of the company.
Additionally, the CNV Rules provide certain minimum levels of consideration for a mandatory tender offer. The mandatory tender offer can be launched at a price freely determined by the bidder, provided the price is not lower than either the highest price paid for such securities in the preceding 90 days, or the price established in the sale commitments entered into between the bidder and the controlling shareholder or other shareholders entitled to take part in the mandatory tender offer.
In all cases, the tendered price must be a fair price; otherwise the CNV can object. The CNV will especially take into account the process followed by the bidder to fix the tendered price, as well as the opinion of an independent specialised appraiser, and the favourable opinion of the target's board.
Any transactions involving securities must be paid:
In pesos by using the various means that the payment systems offer.
In foreign currency through an electronic wire transfer of funds from and to demand accounts in local financial entities.
Delivery versus payment involving foreign accounts.
Therefore, the liquidation of these operations cannot be performed through the payment of foreign currency in cash, through its deposit in custody accounts or in third party accounts.
Additionally, given that these transactions correspond to primary subscriptions of shares listed in self-regulated markets, any funds transferred to Argentina will not be subject to the Encaje (that is, a non-transferable and non-interest bearing deposit in US dollars for 30% of the amount transferred to Argentina that must be kept in the country for a period of 365 calendar days).
If a company has control of at least 95% or more of the shares of a public company (notwithstanding the public company has expressly opted out of the tender offer regime) and is intending to acquire 100% control of the target, it must make a public statement of acquisition of 100% control of the target (section 25, Decree 677/01).
Additionally, if a company has control of at least 95% or more of the shares of a public company, any minority shareholders can require the controlling party to make a tender offer to acquire 100% control of the target or to make a public statement of acquisition of a 100% control of the target. The controlling party has 60 days to decide between making a public tender offer or a public statement of acquisition.
If the controlling party fails to make a statement of acquisition or a public offering after 60 days, any minority shareholder can demand a statement that his shares must be acquired by the controlling party, that the competent legal or arbitration court will fix the fair price in cash for its shares (according to the guidelines of section 32 subsection (d) of Decree 677/01) and that the controlling party must pay this price.
If the controlling party decides to make a public statement of acquisition and obtains the approval of the CNV, the minority shareholders must sell their shares at a fixed price. The minority shareholders can challenge the fixed price by following a certain procedure.
If a tender offer fails, the bidder is prohibited from making another tender offer for 180 days from the publication of the negative result of the offer. This applies to the company, any company from its group, the board of directors and the main office bearers of the company.
Under the CNV Rules, when a public company voluntarily decides to de-list, it must make a tender offer subject to the following requirements, among others:
The company must launch an offer to acquire an amount of securities that represents 100% of the shares and votes of the target.
It is not necessary to include in the offer the shareholders that voted for the de-listing. Such shares must be immobilised until the term of acceptance has expired.
It must be explained in the prospectus that the company is attempting to de-list and the shares that are immobilized must be identified.
The price offered must be fair, following certain guidelines.
The consideration must be in currency.
If the tendered price is not fair, the CNV can object. The CNV will especially take into account the process followed by the bidder to fix the tendered price, as well as the opinion of an independent specialised appraiser, and the favourable opinion of the target's board.
The target's board must (CNV Rules):
Maintain its neutrality and avoid doing anything that exceeds the ordinary course of business.
Issue an opinion with respect to the fairness of the price of the tender offer and a recommendation to accept or reject the offer.
Provide to the shareholders any relevant information about the company that may affect their decision on the offer.
The CNV Rules expressly prohibit that target company from:
Issuing shares or other securities, unless previously approved by a shareholders' meeting.
Implementing stock operations with the securities included in the offer.
Disposing of or pledging its assets, if these may affect the tender offer.
The sale of shares of a company incorporated in Argentina is subject to income tax and stamp duty.
This federal tax applies to the sale of shares by local entities. The applicable rate is 35% of the capital gain. If the sale is by an individual, income tax does not apply. Income arising from the sale of shares by foreign entities is also exempt.
This local tax applies to agreements for the sale of shares (all agreements or any document that transfers ownership of shares). The rate varies depending on the jurisdiction; normally it ranges from 0.8% up to 1.5%. However, there are ways to avoid triggering this tax, such as entering into agreements using the so-called "offer letters" method.
When the shares acquired are publicly offered, some local jurisdictions, such as Buenos Aires, exempt the documents from stamp duty under certain circumstances.
If the acquisition of shares relates to a local financial entity, it is subject to the Central Bank regulations.
For offers made in stock exchanges in Argentina or abroad, if the individual stakes exceed 2% of the total shares, the financial entity need only notify the Central Bank of the characteristics of the deal, and within ten days file information on the identification of the subscribers or acquirers.
However, if the operation could cause a change in the rating of the entity or the structure of the groups of stakeholders, the financial entity must notify the Central Bank within ten days of the execution of the contract, preliminary contract, delivery of reservation payment or partial payment, and must have the Central Bank's prior approval to perform the transaction (complying with any requirements stipulated).
The documents must reflect that the Central Bank must approve the transaction and include express provision that the parties are aware of the applicable regulations.
In certain circumstances, the CNV requires the bidder to notify the Anti-trust Authority for its approval. This must be done within seven days of the request for authorisation for a tender offer being submitted to the CNV. If the Anti-trust Authority does not approve the transaction before to the expiration of the acceptance term of the tender offer, the CNV obliges the bidder to withdraw the offer. As a consequence, it is deemed that the prior approval of the Anti-trust Authority is needed for the acquisition to go ahead.
Additionally, the bidder must provide the Anti-trust Authority with certain information, including:
Identity of the bidders.
Bye-laws and other company documents.
Financial statements.
Identity of shareholders.
Relevant affidavits.
In case of foreign acquirers, certification about the foreign legislation that may apply to them and their activities.
Any economic reports about, for example, market share.
Even when the Anti-trust Authority has 45 days to express its opinion, such term is extended if it asks for additional information (as with the CNV).
Foreign entities are subject to the same general requirements as local entities. Additionally, to become a shareholder of an Argentine company, foreign companies must do the following:
Register with the competent Public Registry of Commerce.
Show that the company:
performs its main activity outside Argentina;
holds sufficient assets outside Argentina;
has decided, at board level, to register the company in Argentina; and
provide details relating to its shareholders.
In addition, if a foreign company develops habitual business in Argentina, it must either (section 118, Companies Law):
Register a branch in Argentina.
Set up a local subsidiary, by registering its shareholders with the competent public registry of commerce.
The repatriation of profits is regulated by the Central Bank. Regarding the transfer of dividends or profits, the Central Bank allows the free transfer to non-resident shareholders and American Depositary Receipts and Brazilian Depositary Receipts holders, as long as the profits are evidenced in a closed and audited financial statement, duly approved by the company.
There are no restrictions or disclosure requirements in these circumstances. However, rules on maintaining secrecy may apply (see Question 6).
Currently, there are no proposals for reform of the takeover regulations in Argentina.
Main area of responsibility. The regulation of the securities' public offering in general and the control of the companies that make public offering of securities.
T +5411 4379 6800
F +5411 4379 6869
E ldenegri@ebv.com.ar
W www.ebv.com.ar
Qualified. Argentina, 1999
Areas of practice. Banking and finance; capital markets.
Recent transactions. Luciana Denegri has wide-ranging experience in the Argentine capital markets through issuing equity and debt, both as corporate bonds and trust certificates. She advises entities acting as issuers, underwriters or organisers of such issuances. She has participated with foreign legal firms in IPOs, the issuance of ADRs and debt securities through Regulation S and Rule 144A.
T +5411 4379 6800
F +5411 4379 6869
E fmierez@ebv.com.ar
W www.ebv.com.ar
Qualified. Argentina, 1996
Areas of practice. Corporate law; M&A.
Recent transactions
Fernanda Mierez has wide-ranging experience in advising clients on the most appropriate legal structure for them to do business in Argentina. Additionally, she provides advice on all aspects of corporate life (such as incorporation, drafting of bye-laws and their amendments, shareholder agreements, M&A and change of corporate form), as well as on the registration of all proceedings required to keep the company in good standing.
