4 Chapter M&A

    • Trends in M & A in Brazil

      Brazil is known as a country where M & A is actively carried out.  During the 90’s, hyper-inflation causes the country’s economy to be sluggish.  In this period there were only few M & A transactions The economic recovery in the second millennium causes the M & A transactions to increase steadily that results to more than 500 M & A transactions during 2006.Record shows that during 2013, there were 812 M & A cases, an increase of around 5.2% from the previous period. In 2014, the highest number of M &A transaction was recorded, with 879 cases, an 8.25% increase in percentage.  However, in the first half of 2015 the percentage of increase of M & A transaction gradually slows down Unfortunately, the second half of 2015 marks the economic down turn of Brazil. The slump in the economy of the country and, stagnation of Sao Paulo’s average stock price causes the local companies’ market capitalization to decrease. Hence, M & A in the country drastically decreased.  Local companies’ market capitalization drastically decreased. The hope in giving life again to M & A in Brazil continues. As of January 2016, as the value of Brazil currency increases (1 US Dollar = 4 Real), M&A transactions is expected to increase.



      M & A Cases of Japanese Companies

      The number of acquisitions (In-Out) by Latin American companies and Japanese companies are 14 in 2011, 24 in 2012 and 14 in 2013, of which 11 M & A to Brazil are 11, 14, 12 based on (RECOV examination). You can see that the most M & A among Latin America’s countries is occupied by Brazil.


      The following table is a case example of M & A from Japan to Brazil conducted in 2012 and 2013.
    • Laws and Regulations Concerning M & A

       When doing M & A in Brazil, several laws and regulations will be involved. Therefore, it is necessary to understand each law in a cross-sectional way.









    • Investment Regulation

      In Brazil, the Foreign Capital Law and Foreign Basic Law (“Lei de Capital Estrangeiro”, Law No. 4131/62 and 4390/64 concerning Foreign Capital and Overseas Remittances) and also the Administrative Order No. 55762, regulations on foreign capital has been set. The definition of the said foreign capital is as follows: "With no initial foreign exchange expenditure, bringing funds for use in economic activities to Brazil, for the purpose of providing the production and service of arbitrary goods using machines or equipment, individuals who live abroad or individuals and corporations that were incorporated into overseas companies ". Under the Foreign Capital Law, as a general rule, foreign capital entry is forbidden or restricted for the following industry/industries in foreign capital law as a rule.


      Prohibited Industries

      Foreign direct investment in the following four industries is prohibited.


      · Nuclear energy development related business

      · Health care · Health service business

      · Postal, telegram business

      · Aerospace industry


      Regulated Industry

      Foreign investment law guidelines (Guia Legalpara Investidor Estrangeiro) restrict foreign-funded enterprises and foreigners from investing over a certain percentage on certain industries in Brazil. In addition to the aforementioned four prohibited industries, the following regulated industries include business activities that are regarded as state-owned businesses and those that are said to have high strategic importance in the Brazilian economy.


      The types of industries and regulations for which the investment ratio is restricted by the Foreign Investment Law Guidelines are as follows.


      Regulations Concerning Capital

      There are no legal restrictions on minimum capital. However, when a foreign resident arrives and acquires a permanent residence visa, it is necessary to pay a capital of 600,000 Ra or more per permanent visa. As an exception, if you plan to hire more than 10 Brazilian employees within 2 years after registering an investment, you can apply for a permanent residence visa with a capital of more than 150,000 Real. Regarding other visas, there is no capital restriction.


      Remittance Restrictions

      Under the Foreign Investment Law Guidelines, there is no restriction on remittance of profits, and even if remitting dividends / profits distributed to companies and shareholders headquartered in Brazil to overseas, they will not be taxed. However, profit or profits derived therefrom before January 1, 1996 are excluded. If a Brazilian company sends a loyalty to a foreign company, remittance must be made through the Central Bank of Brazil. Regarding remittance of royalties to technology supply contracts, technical assistance contracts, expert technical services, etc., it is necessary to register the contents of the contract in the National Institute of Industrial Property Rights (INPI: Instituto Nacionalda Propriedade Industrial) in advance. As for remittance amount of loyalty, since a rate that can be remitted to sales is set, it is necessary to confirm with the National Industrial Property Office beforehand. Also, various remittances are imposed such as financial transaction tax (IOF: Impostosobre Operações Financeiras) of 0.38% for remittance.

      When remitting profits to home country, it is necessary to register remittance at Central Bank via Brazilian Central Bank Information System (SISBACEN) foreign ownership registration number (RDE-IED) as in case of investing in Brazil. Since remittance is made based on the registered foreign capital amount registered in the Central Bank, if there is no registration for the corresponding amount, remittance to overseas will be restricted.

      Prior approval is not required for remittance of foreign capital registered at Brazilian Central Bank to home country. Foreign currency registered in Brazilian Central Bank as nonresident investment is not subject to withholding income tax. However, the amount of foreign currency that exceeds the original foreign capital registration (capital / gain) will be subject to withholding income tax and taxed at a tax rate of 15%.


      Regulation on Land Ownership

      Land ownership in Brazil by foreigners and foreign companies living in foreign countries is prohibited under the Decree No. 5709. However, land ownership is permitted for foreigners residing in Brazil, foreign companies registered in Brazil. However, the possession area in each municipality land area is 25%, and the total area possessed by multiple individuals and corporations of the same nationality is 40%. This requirement applies to foreign nationals and companies. On the other hand, foreigners residing in Brazil and foreign companies registered in Brazil are prohibited from possessing land within 250 km from the border, land facing the coast, and land in the area considered important for national defense.
    • Company Law

       The basic matters concerning the management of the company, such as the transfer of shares used as a method of M & A and issuance of new shares, are stipulated in the Companies Act (Law no. 6.404 of December 15, 1976). When an organization restructuring action such as merger or business transfer is carried out, in order to exert important changes to the company, such as changes in the shareholding ratio and management rights, the Company Law has fundamental matters, as well as procedures and intentions different from ordinary decisions, provisions for protection of shareholders and creditors.


      Issue New Stock

      As a method of M & A, we may issue new shares. This is a method by which stock- issuing-companies issue new shares other than existing shareholders and the buyer side pays in. It is characterized by the fact that ownership of existing shareholders remains, and it is used for joint control with existing shareholders.

      In the case of the issue of new shares in the authorized capital, decision making can be made by resolution of the shareholders meeting or the management council (Company Law 168).

      On the other hand, when issuing new shares beyond authorized capital, they must be decided by ordinary resolution of the general meeting of shareholders and the minutes of the general meeting of shareholders must be submitted to the registration office within 30 days after the resolution. Companies that have established corporate auditors (society) need to hear opinions before resolution (Article 166 of the Companies Act).



      As in Japan, the Brazilian Corporate Law stipulates both absorption mergers and consolidation mergers. The effect is similar to that of Japan, the company to be merged is extinguished and the surviving company succeeds to all the assets and liabilities of the merged company.


      [Procedure of Merger]

      In the case of conducting an absorption merger or a merger, it is necessary for the merger agreement agreed between the parties to the merger to be approved in the ordinary resolution of the shareholders meeting (Article 136, Article 227).

      Ordinary resolution will be conducted with approval of majority of total voting rights (Article 136 of the Companies Act).

      In the merger agreement, in addition to matters concerning the consideration of the merger, the following contents are stated (Company Law 224).


      · Decision criteria for the number, types and pairs of shares to be considered,    and items related thereto

      · Evaluation criteria of net assets, evaluation date, how to deal with asset change

      · Handling of shares or equity of other company’s capital possessed by one company

      · Capital amount of newly established company or increase or decrease in capital

      · Original plan of the articles of incorporation and change plan


      In addition, attention must be paid to the fact that the value of assets that will be accepted by the merger is subject to an obligation to be evaluated by a specialized expert witness (Article 227, paragraph 1 of the Companies Act).

      After resolving at the general shareholders meeting, the company conducting the absorption-type merger will register the fact that the absorption-type merger was made, and the merger will be established by public notice (Article 227 (4) of the Companies Act).


      [Right of Requesting Share Purchase by Opposing Shareholders]

      In principle, if the dissolving merger company is a public company, the surviving company is also required to be a public company (Article 223 of the Corporate Law). This is to protect the public company's shareholders, because the market circulation is seriously impaired if the shares of private companies are allocated. Shareholders who oppose the resolution of the general shareholders' meeting of the merger will be entitled to claim the company to purchase shares (Article 137, Article 223).


      [Counter Objection Proceedings]

      An obligating owner who suffers a disadvantage by absorption merger / incorporation merger may file an action for merger with validity of 60 days from the publication date of the merger minutes. The company can escape the invalid judgment by depositing the debt amount, and if the obligation is not fulfilled, the company can stop the lawsuit by guaranteeing its performance.

      In addition, if the parties involved in the merger are bankrupt within the due date of the opposition proceedings, the creditors can receive payment for the amount of their own claims

      (Article 232 of the Companies Act).



      Split is a method of corporate restructuring, meaning that the company either succeeds or inherits all or part of the project to the target company or to a newly established company.

      The company split has the merit of separating unprofitable departments and integrating the same division with another company. If you succeed all businesses, effectively the same effect as the merger will be obtained and the original business holding company will disappear.


      [Absorption Division]

      Absorption division refers to the merger of absorption merger in this case by applying the division to the existing company (Company Law 229). Upon approval of the Split Agreement by the ordinary resolution of the General Meeting of Shareholders, absorption split will be realized at the time of registration.


      [Newly Established Division]

      Incorporation-type-company split is a division to succeed business to a newly established company, and in this case it is almost the same procedure as absorption merger. With regard to the Split Agreement, it is approved by ordinary resolution of the General Meeting of Shareholders and the incorporation will become effective upon the registration.


      [Right of Requesting Share Purchase by Opposing Shareholders]

      A shareholder of the company that is to be split and shareholders who oppose the division can exercise the right to demand share purchase (Article 137 of the Companies Act) if it meets any of the following requirements:


      · When the purpose of the company changed due to split

      · Cash dividends declined

      · When affiliates are forced to participate


      [Counter Objection Proceedings]

      In case of corporate divestiture, the successor company will bear a joint liability for the obligation before the split. However, in the case of a partial split, the successor company is only responsible for the inherited obligation, and it can arrange that it will not bear joint liability with the split company.

      In this case, since the creditors have recovery risks, the creditors can file an objection to the agreement by notifying the company within 90 days from the announcement of the divisional arrangement (Company Law 233).

    • Securities Transaction Regulation





      Regarding securities transactions, the Brazilian Stock Exchange Committee (CVM: Comissão De Valores Mobiliários) stipulates that regulations such as tender offer obligations and insider trading regulations are intended to protect everyone involved in shares.


      Tender Offer Obligation

      In the case of acquiring a listed company in Brazil, in principle, a tender offer is obligatory and must comply with the regulations stipulated by the Securities and Exchange Commission.

      The tender offer obligation is the obligation to purchase the shares of the target company after publishing the purchase price, purchase period, purchase quantity, etc. It is set for the purpose of preventing profits from concentrating on some shareholders and causing damage to other shareholders.

      (Details of the tender offer obligation will be described later.)


      Insider Trading Regulation

      Insider trading means to buy and sell shares for the benefit of self or related persons based on previously unpublished information. In order to prevent such transactions and protect sound business environment, insider trading regulations are stipulated.

      In Brazil, regulations prohibiting the use of privileged information were set in 2001, and insider trading was regulated. If a violation of insider trading regulation is discovered, it will be treated as a prison sentence for one to five years.

    • New Business Combination Regulation

      The Antimonopoly Law (Competition Law) is aimed at preventing market monopolies and unfair competition in order to maintain sound competition in the capital market. In Brazil, the Antimonopoly Law was amended in May 2012 (RESOLUÇÃO Nº 1, DE 29 DE MAIO DE 2012), M & A also, if certain requirements are met, advance notice is made. It became necessary.


      Transactions Subject to Prior Notification

      A business combination transaction that meets one of the following requirements is defined as an economic concentration action and subject to regulation. In addition, M & A falls under the transaction subject to prior notification because it aims to acquire the control of another company.


      · Merger of two or more independent companies

      · Partial or complete acquisition (without any method) of the control of another company by one or more companies

      · Establishment of a new company through investment of one or more companies

      · Joint venture by two or more companies and concluding other partnership agreement


      Other Pre-notification Requirements

      If both of the following requirements are satisfied, beforehand notification is required in addition to the target transaction:


      · If the Brazilian domestic sales of either one of the companies conducting transactions is more than 400 million Real in the previous year (calendar year)

      · If the Brazilian domestic gross sales of the other company not listed above is more than 30 million Real in the previous year (calendar year)


      It should be noted that the sales standards are calculated based on the sales of the entire corporate group. Even if a company that is a direct party of M & A does not fall under this requirement, a notification is required if the requirement is satisfied when including group companies.


      Timing of Notification and Review Period

      In conducting transactions subject to notification, the Economic Defense Administration Committee (CADE: Conselho Administrativode Defesa Econmica) cannot conduct trading until the committee's review and approval is completed. In principle, the statutory review period is 240 days, but if requested by the business combination party up to 60 days and the Committee decides that further examination is necessary it will be extended for up to 90 days, so the review period is the longest. It may be 330 days.


      New Form of Notification Form

      Documents to be submitted and information are as follows:


      · Marketing report

      · Business plan

      · Company internal documents such as board meeting minutes

      · Information on competitors, suppliers, distribution channels, prices, minority interests of 5% or more, etc.


      For transactions that are less likely to cause competitive problems, you can use the simplified notification form as an exception. In addition, shortening of the examination period is not permitted.


      Sanctions Against Breach of Obligation

      If you complete a transaction with an obligation to report without obtaining prior approval from the Economic Advocacy Administrative Committee, or if you conduct a transaction during the examination period, the parties will be subject to a fine of not more than 60 million Real. 
    • Corporate Anti-Corruption Law

       The Brazilian Corporate Corruption Prevention Law (Leinº 12.846, de 1 deagostode 2013) is a regulation that regulates various corruption activities, it was promulgated on August 3, 2013 and came into effect on January 29, 2014.


      The main feature is that it clearly stipulates the joint responsibility of parent company, subsidiary company, affiliated company, and also has the effect of reduction and exemption of disposition by internal control and leniency. In this law, it is clearly stipulated that the headquarters of foreign corporations and foreign corporations holding corporations, branches or representatives in Brazil are subject to disposal. In addition, the responsibilities of corporations and natural persons are stipulated to be separate and independent, first the responsibility is pursued to natural persons, then the responsibility to the corporation is pursued. However, depending on the case, there is a possibility that it is subject to disposal, only for the corporation. With respect to penalties and damages, not only Brazilian corporations are subject to disposal but also their parent company, subsidiary company, affiliated company and etc. will be jointly responsible.


      Regarding the scope of joint and multiple corporate responsibility, Article 4, Paragraph 2 of the Corporate Corruption Prevention Law states that "a corporation included in the scope of the disposal will be a company that constitutes the parent company, subsidiary, affiliate, consortium of the direct disposal corporation."

      The relationship between the parent company and the subsidiary is judged by the presence or absence of control (possession of a majority voting right, authority to elect a majority of executives). In addition, "consortium" is defined as a contractual relationship (JV etc.) that is stipulated for distribution of profit and loss, and "affiliated company" is defined as a company holding 10% or more of the company's stock.


      When making administrative punishment decisions, the fact that the development of internal control and the effectiveness are taken into consideration is stated in Article 7, No. 8 of the Corporate Corruption Prevention Act. Evaluation of internal control falls under the definitions of effective internal controls under Article 41 and 42 of the Brazilian Anti-Corruption Law Enforcement Regulations (DECRETONº 8.420, DE 18 DEMARÇODE 2015). The administrative organ that conducts the survey will be decided as the administrative penalty within the range of 0.1 to 20% of the total sales of the previous year since the administrative agency's survey began in the fiscal year. If total sales for the previous year cannot be used, it is decided within the range of 6,000 to 60 million Real. In addition, foreclosure of assets are allowed as collateral for payment of penalties. Criteria for determining fines according to the circumstances of each company are stipulated in Article 17 of the Brazilian Anti-Corruption Law Enforcement Regulation.


      In the case of a renewal application, if there are two or more offenders, only those who signed the contract for the first time are eligible. If a corporation belonging to the same economic group jointly sign a contract, all contractors are eligible.


      The point directly related to the corporate anti-corruption law in M ​​& A is the need to undertake the responsibility for the bribery of the acquiring party. Even in scandals before the acquisition, there is the possibility of being questioned after the acquisition, so you can suspend or close depending on punishment. Therefore, in acquisitions, it is necessary to first analyze the risk as a pre-requisite for temporary suspension and closure (company legal due diligence) of corporate management, emphasizing the presence of internal control and the presence of external audit. Natural persons are charged with criminal liability, corporations are subject to administrative sanctions and civil liability for illegal acts. Since there is no precedent, it is necessary to hedge as much risk as possible.

    • Accounting Standard

       When conducting M & A, it is absolutely necessary to carry out valuation of target company and calculate corporate value.


      In Brazil, listed companies and some financial institutions are required to report the consolidated financial statements applying the International Financial Reporting Standards (IFRS) to the Securities and Exchange Commission from the fiscal year ended December 31, 2010. Meanwhile, for unlisted companies and certain companies, accounting is performed based on Brazilian accounting standards in compliance with International Financial Reporting Standards.
    • Tax Relating to Stock Transfer

       When the shares are sold, tax liability will be imposed on the gain on sale of the seller (the difference between the selling price and the acquisition cost). However, the tax amount depends on the owner of the company to be sold (whether it is an individual or a corporation, whether it is a Brazilian domestic or a foreigner, etc.). For Brazilian domestic individuals, a personal income tax (IRPF) of 15% of real income is imposed. On the other hand, in the case of a corporation, as a corporate income tax (IRPJ) 25% of income and a social contribution (CSLL) for corporate profit, a tax rate of 9% on corporate tax pretax profit is imposed. Both foreign individuals and corporations have income tax of 15%.

    • Tax Relating to Property Transfer

       When acquiring assets, additional value added tax (ICMS, PIS, COFINS, IPI) will occur. In this case, it is necessary to pay attention because tax burden is higher than the case of stock acquisition in many cases.


      Tax risks are involved when acquiring companies. The acquirer is responsible for the taxes and accessory taxes imposed by the tax authorities on the activities of the acquired company prior to the acquisition transaction. For example, even if you discover that negotiating your tax obligation or violating compliance occurred after the acquisition, the acquiring party must bear taxes and incidental taxes.

      When acquiring shares of a Brazilian company, it is necessary to carefully consider the major tax contingent liabilities, conduct an evaluation analysis, and fully consider the cost of those obligations in the overall investment decisions. The reason why the transfer of shares is said to be more advantageous in terms of tax than the transfer of assets is that the amortization expenses of goodwill can be deducted.


      Until fiscal year 2014, in the case of transactions based on the provisional tax regime (Regime Tributáriode Transição), the tax goodwill amortization expenses incurred by overseas investors in acquiring shares of Brazilian enterprises, as long as they meet certain requirements, It was deemed possible to include deductible expenses in the period of 10 years. The certain requirement is that it is an acquisition through a Brazilian investment vehicle with a legitimate economic purpose. Lei 12.973 issued in May 2014 is a deduction of goodwill amortization expenses for a certain period of time on condition that the redistribution of acquisition cost (Purchase Price Allocation) is carried out under IFRS and the remainder after the calculation is recorded as goodwill. Also, regarding goodwill accounted for by the end of fiscal year 2014, it is permitted to continue existing processing. Also, in M ​​& A transactions between affiliated companies, it was stated that it is impossible to deduct the goodwill on tax. Previously it was accepted as a benefit based on the above-mentioned certain requirement, but in this amendment, the fact that it will not be accepted afterwards is clearly stated.
    • Continuation of Carryforward Loss Carryforward

       It is necessary to pay attention to whether or not it is possible to continue the tax loss carry forward of the acquired company. In Brazil, since tax loss carry forwards are not restricted by the carry over deadline, you can use up to 30% of the taxable income for each year as a limit. However, if M & A is implemented, the ownership of the acquired company will be transferred and it will be a question whether to carry forward carry-forwards-tax continuously. Under the Brazilian Tax Law, there is no way to offset the tax losses of acquired companies and offset future taxable income if the following two events occur together:



      · Change owner

      · Change in corporate activities

    • Basics of M & A Scheme

       In order to acquire control of Brazilian companies, it is necessary to acquire shares, transfer assets, merger, issue new shares, etc. in accordance with the Brazilian Company Law. In practice, in most cases you acquire control over the acquisition of shares.


      Stock transfer (relative transaction)

      Of the share transfer, the relative transaction is a method of entering a share transfer agreement between the trading parties without going through the market. The greatest merit of this method is that M & A procedures are simpler than any acquisition form. However, in order to prevent unfairness with other shareholders, the minority shareholders holding ordinary shares will consider the consideration for share transfer paid by the acquirer who acquires control It is said that it is possible to exercise the right to request share purchase at a price of 80% of the price of shares.


      Tender Offer

      A public tender refers to the acquisition of shares of a company from unspecified large number of shareholders outside the market after announcing the purchase price, purchase period, etc. The purpose of the system is to ensure that fairness of other shareholders is not harmed, such as being traded on favorable terms by some shareholders. Acquisition of shares by this method is often used in cases of hostile take overs without the consent of the management team of the target company or to add a premium to urge the application for the purchase. It can be said that it is a transaction that requires enormous funds.


      According to the provisions of the Securities and Exchange Commission, the Tender Offer is classified as follows (CVMI No. 361):


      · Hostile takeover bid (CVM Instruction Article 13)

      · Tender offer for the delisting (CVM Instruction Article 16)

      · Tender offer for raising the shareholding ratio (CVM Instruction Article 26)


      · Tender offer for acquiring control of listed companies (CVM Instruction Article 29)

      · Friendly Tender Offer (CVM Instruction Article 31)


      [When a Tender Offer is Required]

      Currently there are no regulations that oblige the Tender Offer under the Corporate Law or the Securities and Exchange Commission regulations. However, many of the public companies stipulate that the Articles of Association oblige the Tender Offer.


      [Procedure of the Tender Offer for Acquiring Control]

      In the case of a tender offer for the purpose of acquiring control, the intermediary of a financial institution that guarantees the performance of obligations of the applicant is a requirement (Article 257 of the Companies Act). Specific procedures are as follows:



      ❶ Registration to the Securities and Exchange Commission

       When making a tender offer to acquire control, a financial institution that guarantees the purchaser's payment is required. In addition, when considering part or all of the consideration as shares, advance notice to the Securities and Exchange Commission is required (Article 257, 259 of the Companies Act, Article 9 of CVM Instruction). In addition, if the purchaser holds the shares holding the voting rights of the target company before the Tender Offer, he / she shall apply to the Securities and Exchange Commission regarding the number of shares required for control. He/She must report the reason to acquire and the quantity of shares to be acquired etc. (Article 257 of the Companies Act).


      ❷ Publication of public tender offer by newspaper ·

      ❸ Submit copy of advertisement to Securities and Exchange Commission

       After registering with the Securities and Exchange Commission, he/she must publish a tender offer application form (OPAInstrument) with certain items in the newspaper for up to 10 days. In addition, it is necessary to submit a copy of the public notice to the Securities and Exchange Commission within 24 hours from the start of public notice (Article 258, 259 of the Companies Act, Article 11 of CVMInstruction). A copy of the public notice will result in a public tender offer. In order to be used for viewing the securities market and over-the-counter transaction market, it must be written in a prescribed form.


      · Lower limit of the number of shares to be acquired (maximum number of shares if any)

      · Payment amount and terms of payment

      · How to allocate to the Acquirer when the offer price to the Acceptor and the number of shares to be applied exceeds the upper limit

      · Procedures necessary for the application acceptor to indicate intent to give consent and transfer shares

      · Deadline of purchase application (over 20 days)

      · Information on the applicant for purchase


      The purchase application form must be prepared by the intermediary financial institution and the items to be noted are as follows[U1] . In addition, in the case of consideration as a stock, in addition to the above items, information on the shares used for the exchange and information on the issuing company must be stated.

      Prior to the announcement of the Tender Offer, confidentiality obligation is imposed on the purchaser applicant, intermediary financial institution, and the Securities and Exchange Commission. In the case of violating this obligation, we must take responsibility for the damage that occurs.


      ❹ Start of tender offer

       Acceptance of purchase application is required to be made through the financial institution or stock market listed in advance in the application form. If the acquirer acquires shares to the ratio that can gain control, it will not be allowed to withdraw afterward (Article 257 of the Companies Act). If the purchaser approves the sale or exchange in accordance with the application conditions, it cannot be cancelled (Article 261 of the Companies Act).


      ❺ End of Tender Offer

      The intermediary financial institution must report the results of the tender offer to the Securities and Exchange Commission after the application deadline and further notify the approved party by publishing it to the newspaper. In addition, if the number of approved applicants exceeds the upper limit, allocation will be made according to the method described in the TOB Application Form (Article 262 of the Companies Act).


      ❻ Settlement of tendered shares

      Settlement by cash, settlement by stock, or both can be done (Company Laws 258, 259, CVMI nstruction Article 6).


      [Change in Tender Offer Price] (Companies Act 261)

      Price and payment terms can be changed only once. Changes must be made ten days in advance of the deadline, especially if price changes are added by 5% or more. The same conditions must also be applied to those who already accepted the application.


      [Withdrawal of the purchase] (CVMInstruction Article 16)

      If there is a reason that leads to the exercise of withdrawal right (Withdrawal Right) within one year from the purchase, shareholders who sold shares at the Tender Offer will be able to exercise their right to withdraw. In addition, shareholders who have not sold shares yet can receive the difference between the price at the time of withdrawal and the excess of the underwriting price at the time of purchase.


      [Competition of purchase] (Article 262 of the Companies Act, CVMInstruction 12)

      Even while an application for a tender offer is being held, it is possible to make a purchase that competes with the purchase. The period of purchase is the shortest 30 days from the date of publication, and the maximum is 45 days. The original applicant can extend the deadline of the purchase to the same deadline as the purchaser applying for the competition. In addition, acceptance of the original application already confirmed will be invalid when the tender offer application for competition is published. In addition, the intermediary financial institution must notify the Securities and Exchange Commission of the documents concerning the purchase within 4 business days after the end of the purchase.


      Share exchange

      Through the share exchange, the target company becomes a complete (100%) subsidiary of the acquired company. The biggest merit is that transactions are carried out with consideration for own stock, no funds are required, and the procedure is simpler than the merger.

      In recent years, Brazilian largest airline Tan (TAM) Airlines took a share exchange with Chile Airlines major airlines (LAN) Airlines at the US Securities and Exchange Commission (SEC) in June 2012 and Ratan (LATAM). This is a famous case sighted.


      Business transfer

      Acquisition of Brazilian companies by general overseas investors takes the form of acquisition of business unit assets (business assets) and underwriting of some or all of the debts. In this case, unlike in the case of stock acquisition, the acquirer will bear the secondary responsibility for corporate tax obligations. In other words, if the transferor cannot pay corporate tax liabilities, the acquiring party will be charged with liability. However, with regard to various VAT (ICMS, PIS, COFINS, IPI) and labor debt, the acquirer will take primary responsibility.
    • Other Issues

       Popularization of poison buildings

      In Brazil, poison buildings (hostile takeover defense measures) which are not introduced in Japan are widely recognized and used. Poison building is to preliminarily set matters that will stop its acquisition when a hostile takeover acquires certain voting rights. For example, there are various methods such as is necessary to prescribe forced take off provisions to acquire all shares of issued shares, issue stock acquisition rights that can be purchased below market price to existing shareholders, add a certain premium to the tender offer price.

      Since poison buildings are used in Brazilian listed companies, there is a possibility of obstacles in the M & A process.


      Term and restriction of technology transfer agreement

      There are cases where we acquire the manufacturing industry to utilize existing resources regarding equipment and labor. In this case, it is common to provide the technology of the parent company in Japan and acquire the royalty as consideration.

      However, in Brazil there is also a purpose to prevent the outflow of foreign currency, in principle the period of such technology transfer agreement is up to 5 years. If you can obtain the permission of the National Industrial Property Council, you can extend the period of 5 years again, but the extension after that cannot be accepted. Regarding royalties as a rule, it is set not to exceed 5% of the sales of products manufactured by this technology transfer.