In 2013, I wrote an article talking about the different types of Tender Offers and the need for companies to transcend the legal requirements and develop a well structured communication program in order to ensure equal treatment for all shareholders. At the time, I highlighted the Public Tender Offer for the delisting of companies and discussed cases such as CCDI, Redecard and Amil. Since then, there have been a few more current examples, so I’ve decided to take another look at the subject.

Economic deterioration and currency devaluation scenario

With the deterioration of the economic outlook, stock prices have fallen and, with the Brazilian currency devaluating, assets are much more attractive to overseas controlling shareholders and foreign investors. Therefore, in 2015, the subject regained momentum with the Souza Cruz Tender Offer, which restarted the intensification of the delisting of Brazilian companies.

Case – Public Tender Offer for Souza Cruz

Souza Cruz was listed on the stock exchange since the 40s and was a market leader among publicly traded Companies as one with the best dividend yield. The bidder was British American Tobacco (BAT), its controlling company, of British origin, and which held more than 75% of Souza Cruz’s capital stock. BAT’s decision was most likely determined taking into consideration the following factors:

• Souza Cruz’s great cash generation capacity;
• The price of the Company’s shares; and
• Favorable exchange rate.

The intention of the Tender Offer was announced in February 2015, but after re-evaluation requested by the minority shareholders, BAT increased the value of the offer, and with this, Souza Cruz’s capital stock closing auction was held on October 15, 2015 and more than US$2.4 billion was handled in the operation, representing nearly US$1 billion of savings to the British company, compared to what would have been spent if the bid had been made in February. The result was positive for BAT due to the devaluation of the Brazilian currency, nullifying the increase in the price offered for the shares.

Offers in Analysis

In addition to foreign controllers, the economic scenario is also drawing the attention of Brazilian controlling shareholders of companies listed on BM&FBOVESPA.

Currently, 14 Takeover Bids are being analyzed by the CVM (Securities and Exchange Commission), and 12 are for the delisting of the companies.

We have, today, an outlook in which several companies’ market capitalization are below their book value. This means that, in addition to the large amount of share buyback programs (more than 70 Companies have launched buyback programs since 2015), controller shareholders are also choosing Public Tender Offers for companies delisting. Currently, 14 Public Tender Offers are being analyzed by the CVM (Securities and Exchange Commission), and 12 are for the cancellation of listed company registrations.

Below is a list of the 12 Companies for which delisting Tender Offers are being analyzed by the Securities and Exchange Commission:

Strategic decision

As I previously said in the 2013 article, as well as an IPO, the decision of the Tender Offer involves a series of evaluations of the advantages and disadvantages of the company to remain listed on the stock exchange. The delisting is seen as an opportunity for the financial and strategic management of the controlling shareholder. The costs of maintaining the publicly-held Company (CVM, BM&FBOVESPA, auditing, legal publicity, etc.) and the necessary efforts to comply with specific legislation may weigh on the decision and nothing prevents the Company from returning to the market in the future. Therefore, with the negative outlook for the Brazilian economy, we will probably see a few more offers taking place.

João Marin

Inicialmente publicado em: João Marin – LinkedIIn