Brazilian Takeover Panel – an answer to the problems facing the stock market

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CAF – the Brazilian Takeover Panel was established in 2013 as a result of a joint effort by BM&Fbovespa (the Securities, Commodities and Futures Exchange), ANBIMA (the Brazilian Association of Entities of the Financial and Capital Markets), IBGC (the Brazilian Institute of Corporate Governance), and AMEC (the Association of Capital Market Investors) towards the self-regulation of the market with a view to discussing issues related to public tender offers and corporate restructurings. CAF’s structure was based on the model of the United Kingdom’s Takeover Panel, created in 1968 also in the self-regulation sphere but that, due to the credibility gained, was eventually incorporated to the legislation and started to be a compulsory stage in all tender offers and corporate restructurings. Recently, the European Community has recommended that all the countries in the region should create entities of this type.
As it happens with Novo Mercado, companies adhere to CAF Code on a voluntary basis. In this case, the company’s bylaws need to be adjusted to the panel’s code and must comply with all standards established by it in the case of tender offers or corporate restructurings. In the event an investor with legitimate interests understands that the standards have not been met, he/she can file a complaint with CAF, at no cost. CAF is expected to provide the complainant with its opinion within 30 business days. Non-adhering companies or issuer companies, in the case of tender offers, can also turn to CAF through prior Inquiries (private tender offers) or Inquiries (public tender offers). If the inquiry is related to a corporate restructuring among related parties, CAF’s opinion is based on CVM’s presumption of regularity, as to the Agreement signed in 2013.
The CAF Code introduces solutions for some of the dilemmas not properly assessed by existing laws or self-regulation codes. An example would be the issue related to the difficulty in the applicability of the minority shareholders’ right to receive an offer for the purchase of their shares in the case of divestiture of shareholding control, the Tag Along, exactly because the trigger established by the law – divestiture of shareholding control – can lead to different interpretations, doubts and controversies not yet solved by the regulator. For companies that adhere to CAF, the regulation is objective: the purchase of a share interest established in the bylaws that corresponds from 20% to 30% of the voting capital pulls the trigger of a compulsory OPA because of the relevant participation reached by the acquirer. Another example would be the corporate restructuring with the exchange of different shares among shareholders of the same type of shares, allowed with some exceptions by the law, but forbidden by the CAF Code. In the case of corporate restructurings with related parties, in which the legislation establishes that minorities shareholders must accept what is offered or leave, based on a price set in an informative appraisal report, the CAF Code provides three options for the exchange of shares among shareholders, among which a cascade of appraisal reports, what assures a more balanced treatment. In addition to the above-mentioned examples, among others, CAF has flexibility to adjust its standards to the market demands, provided such adjustments are in line with its basic principles, such as the egalitarian treatment among shareholders of the same class of shares and equitable treatment in relation to the shareholders of other types or classes of shares.
The Brazilian Takeover Panel is starting to be more widely known, to demonstrate its usefulness to the market and to gain credibility and consolidate itself as a tool to mitigate shareholders’ uncertainties. This is the usual maturation process of a new reference focused on raising the bar of corporate governance standards. CAF represents a qualitative leap when it comes to the Brazilian stock market, with a significant increase in investors’ confidence and a clear differential over other emerging markets. The investors’ role, encouraging companies to adhere to or consult with CAF, will be essential for its consolidation.
Amec has been a strong advocate of the idea of creating an entity like the Takeover Panel in Brazil since the beginning of discussions related to the topic. Amec Annual Seminar held in December 2009 was exclusively focused on this topic and can be considered the first public event about it, a real driver for the joint efforts geared by the market’s entities. After the seminar, the jurist Mr. Nelson Eizirik developed a code project, sponsored by BM&FBovespa, which was discussed by the entities’ representatives. In 2013, after the completion of all legal and administrative procedures, ACAF – The Takeover Panel Sponsors Association – was officially created. ACAF is the legal foundation of CAF, which is an independent body comprised of 11 members with proven legal or market expertise. ACAF also has an Administrative and Supervisory Board formed by representatives of four supporting entities who follow the administrative procedures and supervise conflicts of interest among CAF’s members. Yet the Office of the Panel Secretary, head by a professional managing director, is responsible for providing administrative and technical support to the Panel.
We would like to invite Amec’s members to learn more about CAF whether by visiting our site ( or getting directly in contact with the entity’s Administrative and Supervisory Board. You may also consider the possibility of encouraging invested companies to adhere to CAF in the case of an IPO or to consult the panel in the case of tender offers or corporate restructurings after their IPO. In addition to the image gain and possible stock valuation, their adherence would be a strong sign for investors of good conduct in future tender offers or corporate restructurings.
Article by Walter Mendes, CAF Managing Director