The public consultation recently ended by the Brazilian Securities and Exchange Commission (CVM) as per the terms of notice no. 03/2009 has given rise to Advisory Opinion no. 36, which will likely be a divider of waters in acquisition operations on the stock exchange. The opinion refers to public companies whose bylaws include ownership dispersion protection clauses combined with clauses that restrict the removal of such devices.

The Brazilian dispersed ownership protection clauses were popularly nicknamed poison pills, inspired by (despite having little similarity with) the shareholders’ rights plans created by American lawyer Martin Lipton. Widespread in the USA since the 1980s, these plans were ratified by that country's jurisprudence, most notably that of the Supreme Court of Delaware. Their objective was to increase the bargaining power of target company managements during hostile takeover attempts. They forced the acquirers to negotiate with management so as to maximize shareholder value both in the short term (via auctions) and long term (by refusing offerings that did not match the company's intrinsic value in the managers' opinion).

In Brazil, these devices were conceived with more objective criteria. Basically, they force the acquirer of a given percentage of the voting shares of a company to make an any-and-all bid to acquire all of the remaining voting shares. To this offering must be added a fixed, pre-established premium on the appraised price, calculated as prescribed by the company's bylaws. Thus, these devices aim to extract a premium from the acquirer and transfer it to the target company's shareholders. However, they often raise the company's price by too much and without justification, thereby making it prohibitive to acquire it.

CVM opinion enables shareholders to approve the annulment of poison pills without any added encumbrance

This situation in itself would not be a problem if the shareholders could gather in an extraordinary shareholders meeting and decide to alter the bylaws in order to exclude the poison pill clause, should they receive an offer whose price seemed adequate to them. This has become impossible, however. Many Brazilian companies installed devices that force any shareholders who vote in favor of suppressing the poison pill to make a public offering per the terms set forth in the bylaws, thereby imposing an encumbrance.

Aware of this impasse, the CVM edited Advisory Opinion no. 36, through which it declared that it will not apply sanctions to shareholders who vote for suppressing or altering a poison pill, even if they do not make the public offering required by the company's bylaws. Although an Advisory Opinion has no regulatory authority, it gives a generic preview of what the regulator will decide regarding the matter. It therefore makes the administrative route ineffective for anyone who would want to enforce a poison pill.

Therefore, as of now, the coast should be clear for shareholders who want to annul a poison pill if an offering — even if not in line with the prescribed requirements — favors the interests of a company and its shareholders. We will likely soon see a more intense movement of listed company acquisitions, a trend which has been incipient until now, especially in the Novo Mercado.