|Valuation report judged unnecessary in subsidiary mergers|
Regarding the merger of Hypermarcas S.A. with its subsidiary, York S.A. Indústria e Comércio, Hypermarcas consulted the CVM on the possibility of replacing the valuation report prescribed by article 264 of the Brazilian Companies Act (on cases of mergers of subsidiaries into their parent companies) with an accounting valuation or, if such was not permissible, for a valuation of discounted cash flow.
In its consultation, Hypermarcas claims that a valuation report should be considered unnecessary in this case because: 1) the shareholders of the public companies will not be subject to significant dilution; 2) York's minority shareholders are not subject to CVM authority, as York is a privately held corporation; 3) the size of both companies involved in the operation would demand a lengthy period to prepare a net equity valuation report; and 4) there is a clear imbalance between the informational value of the report at market prices and the direct and indirect costs of its preparation.
The CVM technical department stated that the requirements set forth in article 264 of the Law have two purposes: the informational and the economic. From an informational point of view, considering the very minor dilution that the minority shareholders would be subject to, the non-controlling shareholders of Hypermarcas would not benefit sufficiently from procuring a valuation report at market prices given that they would have to defray (even if indirectly) the preparation costs of that report. The economic purpose has to do directly with the possibility of York's minority shareholders exercising their right of recovery, should the conversion rate established by the valuation report prescribed by article 264 be better than the rate effectively applied. However, given that the Hypermarcas shares to be received by the York minority shareholders are highly liquid and York is a privately held company, the CVM does not have the authority to decide on the rights of the respective group of non-controlling shareholders.
Agreeing with the technical department, the CVM board decided that the regulator could not justify any action demanding that calculations be based on valuation reports at market prices, as opposed to accounting reports. The decision was in line with previous cases already judged by the CVM. (CVM Proceeding RJ 2010/16879)