Eloy Alfaro Boyd of Alemán Cordero Galindo & Lee assesses the regulatory landscape for mergers and acquisitions in Panama
1. REGULATORY FRAMEWORK
1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
Private M&A activity is not specifically governed under Panama law, except in cases in which the target company operates in a regulated market, in which case any merger or acquisition will most likely be subject to the prior authorisation of the corresponding supervisory entity. For example, in the case of Panamanian banks and trust companies, the Superintendence of Banks of the Republic of Panama; in the case of Panamanian broker dealers and investment advisers, the Superintendence of the Securities Market).
Decree Law 1 of 1999 (Securities Law), as amended, regulates the securities market and created the Superintendence of the Securities Market. This Securities Law sets out the framework for a public offer for the acquisition of shares in a registered company in Panama, a process that is supervised by the Superintendence of the Securities Market (Superintendence).
1.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
Any person, including the issuer, who publicly makes an offer in the Republic of Panama to purchase shares of an issuer registered with the Superintendence amounting to 25% or more of the capital stock issued and outstanding of such issuer, must notify the Superintendence and comply with the formalities, content and form, it requires. Such requirements may concern the procedure for distributing offer documents; the information to be disclosed in such documents; and, the form of such documents, for the purposes of establishing an equitable procedure for all parties involved.
The notice provided to the Superintendence must be submitted either before or at the time when such person launches the public offer for the purchase of shares. A copy of the notice should also be delivered promptly to the issuer and to the securities exchanges in Panama where the shares being offered are listed. This notice should contain the information as stipulated by the Superintendence, and a copy of the documents to be used in making the public offer for the purchase of shares, and such documents should contain the terms and conditions of the offer.
In determining the information to be included in the public offer documents, the Superintendence should only require information that is relevant for the shareholders to make an informed decision on whether to accept or reject the offer. It should refrain from requesting information and documents that do not fulfill such purpose or any that would impose an unjustified burden on the issuer or the person disclosing the information. The Superintendence may establish different requirements of disclosure of information taking into consideration, among other things, the kind of issuer or security involved, or the kind of investor the offer is being made to. Documents to be used in making a public offer to purchase shares may not contain false information or statements concerning material facts, and they may not omit information or statements concerning material facts which, under the Securities Law and its regulations should be disclosed, or any that should be disclosed in order to make the statements contained in the solicitations either misleading or deceitful in the circumstances under which they were made. Documents to be used in making a public offer for the purchase of shares may contain any other additional information which the person making the solicitation may wish to include, provided that it is relevant and that it is not information which the Securities Law and its regulations forbid.
If at any time, in the opinion of the Superintendence, the documents to be used in making a public offer for the purchase of shares (or any other publicity or information material related to such offer) were to contain false information or untrue statements concerning material facts, or if they were to omit information or statements under the Securities Law and its regulations, the Superintendence may order the suspension of the use of said documents. It may, alternatively or also, suspend the public offer to purchase the shares, until said documents are amended or supplemented as the Superintendence may require.
2. STRUCTURAL CONSIDERATIONS
2.1 What are the basic structures for friendly and hostile acquisitions?
The basic structure for the acquisition of a Panamanian public company is as outlined above and set out in the Securities Law; it is a contractual takeover by means of a public offer by the bidder for the shares of the registered company.
2.2 What determines the choice of structure, including in the case of a cross-border deal?
The structure would be the same in terms of the public offer process, even in the case of a cross-border deal.
2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
The period for acceptance of a public offer to purchase shares may not exceed 30 days to be counted as from the date when they are made. Any public offer to purchase shares registered with the Superintendence must be made on equal terms and conditions to all holders of such shares, and the same purchase price must be paid by all of the holders of such shares who accept the offer.
2.4 Are there restrictions on the price offered or its form (cash or shares)?
Other than as specifically contemplated in the Securities Law and regulations, the person making the offer may freely determine the terms and conditions of the offer, including a price in the form of cash, shares, or a combination.
2.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
There is no specific threshold on the level of acceptance or ownership or other conditions to determine whether the acquisition proceeds, other than as set out under the terms and conditions of the offer itself.
Although the Securities Law and regulations do not specifically provide for anti-squeeze-out protections for minority shareholders, they could potentially present a claim and challenge in court any squeeze-out or other attempt to eliminate them as shareholders without their express consent.
2.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
Our Securities Law stipulates that any public offer to purchase shares registered with the Superintendence must be made on equal terms and conditions to all holders of such shares, and the same purchase price must be paid by all of the holders of such shares who accept the offer. Additionally, in the event that offers for the sale are received for a number of shares greater than the one stipulated in the public offer to purchase, the bidder should acquire the shares in proportion to the acceptances received.
2.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
Bidders are not restricted from making conditional offers. A requirement for bank guarantees or certain funding of the purchase price is not expressly stipulated. It is also important to consider that any holder of shares who has accepted a public offer to purchase shares may revoke his acceptance before the end of the term of the offer. The person making a public offer to purchase shares may reserve the right to withdraw the offer at any time and for any reason whatsoever.
3. TAX CONSIDERATIONS
3.1 What are the basic tax considerations and trade-offs?
The transfer of shares of Panamanian companies that generate income domestically are generally subject to capital gains tax. Although the sales of shares of companies on the Panama Stock Exchange (Bolsa de Valores de Panamá) registered with the Superintendence of the Securities Market are exempt from the payment of capital gains tax, this exemption does not apply to transfers through a public offer or takeover.
3.2 Are there special considerations in cross-border deals?
There are no particular special considerations in cross-border deals. Panama does not impose any restrictions on incoming foreign investment or on repatriation of investments.
4. ANTI-TAKEOVER DEFENCES
4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
Hostile takeovers are not common in Panama, so the typical anti-takeover defences for publicly-listed companies in Panama have not been fully developed. The more likely defences would be effecting super-majority provisions in the corporate charters (pacto social) of the company to discourage potential bidders, and to withhold information and cooperation in any potential due diligence attempt by bidders.
4.2 How do targets use anti-takeover defences?
As noted earlier, although not commonly used by publicly-listed companies in Panama due to the infrequency of takeover attempts, the most likely would be super-majority voting rights and management standoff in the face of any due diligence attempt.
4.3 Is a target required to provide due diligence information to a potential bidder?
No, a target in Panama would not be required to provide due diligence information to a potential bidder.
4.4 How do bidders overcome anti-takeover defences?
In the case of super-majority voting rights, which would undoubtedly include the ability to modify the companies charter, any potential bidder would need to ensure either control or at least the cooperation of such super-majority in order to be able to revert any such super-majority rules in the charter.
4.5 Are there many examples of successful hostile acquisitions?
Yes, but friendly acquisitions are much more common.
5. DEAL PROTECTIONS
5.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
A friendly bidder and target could attempt to procure proxies from friendly shareholders in an effort to stall any hostile interlopers.
5.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
This matter is not specifically regulated under Panamanian law.
6. ANTITRUST/REGULATORY REVIEW
6.1 What are the antitrust notification thresholds in your jurisdiction?
Antitrust matters in Panama are governed by Law 45 of October 31 2007 (Antitrust Law), and are supervised by the Authority of Consumer Protection and the Defence of Competition (Acodeco). The Antitrust Law does not establish a specific threshold for notification of mergers or acquisitions involving local companies, but it does establish a broad concept of what constitutes an economic concentration. It specifically prohibits economic concentrations that would or could have the effect of reducing, restricting, damaging or impeding, unreasonably, free economic competition with respect to like, similar or substantially related goods and services.
6.2 When will transactions falling below those thresholds be investigated?
Although there is no specific threshold, Acodeco has the authority to review any economic concentration, and the submission of a transaction for review by Acodeco is not mandatory.
6.3 Is an anti-trust notification filing mandatory or voluntary?
The economic agents involved in a transaction may submit the transaction to the prior review of Acodeco and request its favourable opinion.
6.4 What are the deadlines for filing, and what are the penalties for not filing?
There is no specified deadline for filing, but if submitted for the prior review of Acodeco, then the filing must be made before the transaction becomes effective. Once filed, Acodeco must issue a decision 60 calendar days after it has received all required information. Acodeco may request additional information within 20 days of the initial filing, and it usually issues a resolution indicating that no additional information is needed, which triggers the 60 day countdown. Acodeco may impose certain conditions to be complied with by the transaction or order partial or total unwinding, termination of control or annulment of acts.
6.5 How long are the antitrust review periods?
The benefit of making the filing for prior approval from Acodeco is that the law has a safe harbour provision and, if the transaction receives a so-called favourable concept from Acodeco, the parties may carry out the economic concentration without the risk of the legality of the transaction being questioned in the future. On the other hand, economic concentrations that are not voluntarily submitted to Acodeco for prior verification may be challenged within the three subsequent years of the transaction being carried out.
6.6 At what level does your anti-trust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
Acodeco has the authority to impose monetary fines on economic agents, and also to order an economic concentration to be unwound (partially or completely) if it is found to violate the law.
6.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Unless the target company operates in a regulated market (for example, banking, securities or insurance) which requires additional governmental approvals, or in the absence of specific change of control restrictions imposed on the assets or activities of the target company (for example, concession contracts), then a bidder should not face any unreasonable additional obstacles in a local or cross-border M&A transaction of a Panamanian target.
7. ANTI-CORRUPTION REGIMES
7.1 What is the applicable anti-corruption legislation in your jurisdiction?
The Republic of Panama is a signatory of the Inter-American Convention against Corruption of the Organization of American States (OAS Convention), as well as the United Nations Convention Against Corruption (UNCAC). At a local level, anti-corruption legislation is dispersed in several Panamanian statutes; for example, it is typified as a crime in Article 345 (et seq) of the Penal Code (on corruption of public servants). In addition, by means of Executive Decree 179 of October 27 2004, Panama created a National Council of Transparency against Corruption.
7.2 What are the potential sanctions and how stringently have they been enforced?
Article 347 of the Penal Code states that 'whoever, in any form, offers, promises or gives a public officer a donation, promise, money or any benefit or advantage to perform, delay or omit any act of their own office or employment in violation of their duties shall be punished with imprisonment three to six years'.
8. OTHER MATTERS
8.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
Not in addition to those already covered in this report.
8.2 What are the key recent M&A developments in your jurisdiction?
After a high level of M&A activity in Panama between 2006 and 2008 (principally in the financial industry), M&A activity has again picked up considerably in the last few years across an ample spectrum of industries. In 2015, we expect the level of M&A activity in Panama to continue its recent growth, or at least remain stable. Although there are no specific driving factors behind the increase in deals, it is certainly the case that Panama's economic growth makes local companies more attractive targets.
First published by our sister publication IFLR magazine. Take your free trial today.
Eloy Alfaro Boyd
Alemán Cordero Galindo & Lee
About the author
Eloy Alfaro Boyd joined Alemán Cordero, Galindo & Lee (Alcogal) as an associate in 2004 and became a partner in 2011. His main areas of practice are banking and finance, capital markets, corporate and M&A, public tenders and concession contracts, real estate and infrastructure. He is a member of the Panama Bar Association (2011) and serves on the board of directors of London & Regional Panama and GNB Sudameris Bank. He has a Juris Doctor from the University of Pennsylvania and a Bachelor of Arts in political science from Columbia University. He is fluent in Spanish and English.