COUNTRY UPDATE ON BRAZIL
By – Alexandre L. Ribeiro do Valle and Carolina Pett G. Gonçalves – Article – ABA International M&A and Joint Ventures – March 2010
Besides the international financial crisis, Brazilian market has registered a considerable number of M&A transactions during 2009 and as the beginning of 2010 indicates will register a higher number this year with the consolidation of some administrative and judicial decisions relating to M&A transactions and also with several changes in the related legislation. In addition, the world cup and Olympic games are already in evidence and pushing investors to carefully look at the Brazilian Market.
Apart from the recently changes in the accounting system, introduced by law number 11638 that came into force last year, the main points that should be emphasized as recent changes into the Brazilian legal system are the following:
In force since 2005, law number 11.101 has completely amended the procedures for bankruptcy in Brazil, enabling companies with punctual financial difficulties to restructure its debts by negotiating different conditions with creditors or selling part of its assets. A recent decision from the Supreme Court issued in November 2009 puts an end to the discussion whether the buyer of such assets would be considered as tax and labor substitutes of said companies, by considering that in such circumstances the buyer shall not respond for the sellers’ obligations. Such decision will certainly open more space for acquisition strategies.
There is also a current expectation that a new antitrust law will be enacted during 2010. The bill of law 3.937/04 has being approved by the house of representatives and sent to the Senate for discussions and deliberation. Apart from the complete reorganization of the internal structure of the Antitrust Agency (CADE), the main changes to be introduced by the law rests on the requirement of prior approval of acts that could be considered prejudicial to competition. Actually, Brazil adopts an after submission system.
If the bill is approved, the number of transactions submitted to approval is expected to decrease, since there will be a second trigger for the submission. With the prevailing laws, if any of the parties involved in the transactions has registered, in Brazil, an annual revenue greater than R$ 400,000,000.00 the transaction shall be submitted. With the proposed changes, in addition to such requirement, the transaction will only be submitted if the other party has registered an annual revenue greater than R$ 30,000,000.00.
Corporate governance issues are also on the highlights, and poison pills were on the top of the discussions in the last few months. Many companies have adopted regulations stating that shareholders voting for the exclusion or amendment of clauses relating to poison pills should be obliged to make public offers to the other shareholders, with the argument that Initial Public Offers in Brazil would not be possible if the former controller is not keep saved in the control of the company even after going public. After several discussions, Brazilian Stock Exchange Commission recently issued an instruction in the sense that there should be no penalties for shareholders voting for the change or exclusion of poison pills.