Pablo A. Artagaveytia and Barbara V. Ramperti of Marval O'Farrell & Mairal assess the M&A regulatory framework in Argentina
Section 1: GENERAL OUTLOOK
1.1 What have been the key recent M&A trends or developments in your jurisdiction?
Technology and agribusiness have been the leading sectors for the latest M&A developments.
The discovery of Vaca Muerta, one of the largest shale oil reserves in the world, will also likely help boost foreign investment in the oil sector.
1.2. What is your outlook for public M&A in your jurisdiction over the next 12 months?
The new administration is interested in attracting new investment in Argentina. This investment is necessary for key sectors of the Argentine economy.
The initial measures adopted by the new administration were targeted at giving more flexibility to the foreign exchange market. We expect further regulations to be passed, aimed at attracting investment into the M&A sector.
Section 2: REGULATORY FRAMEWORK
2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
Public M&A is governed by the Argentine Civil and Commercial Code, the Argentine Companies Law (ACL), and the Capital Markets Law (CML). The CML is complemented by a set of rules promulgated by the Argentine Securities Commission (Comisión Nacional de Valores, or the CNV). They are known as the CNV rules.
2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The CNV enforces takeover regulations over publicly listed companies in Argentina. Since the enactment of the CML in 2012, the takeover of publicly listed companies requires addressing mandatory tender offers to the shareholders of the public target entity.
Section 3: STRUCTURAL CONSIDERATIONS
3.1 What are the basic structures for friendly and hostile acquisitions?
Hostile acquisitions are rare in Argentina.
There are a small number of publicly listed companies in Argentina and the controlling stake of publicly listed companies is usually held by a small number of shareholders. It is normal for there to be a single controlling shareholder. This in itself creates a substantial barrier against the possibility of hostile takeovers taking place. Thus, essentially all public acquisitions are friendly.
In general, the prospective buyer enters into private negotiations with the controlling shareholder of the public target. Once an agreement is reached, the buyer makes a tender offer, which is subject to the CML and the CNV rules.
3.2 What determines the choice of structure, including in the case of a cross-border deal?
Given that most acquisitions are friendly, the structure of a public acquisition essentially depends on the organisational structure of the target and on tax considerations.
3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
A transaction that does not require a mandatory tender offer and is not subject to antitrust clearance or other regulatory approval may be closed rapidly. However, the closing of a transaction that requires a mandatory tender offer and antitrust clearance can take a long time. Mandatory tender offers must be open for at least 25 business days. In addition, proceedings for antitrust clearances in Argentina take 24 to 36 months.
Competing bids may be submitted within 15 calendar days of the authorisation of the original bid by the CNV.
3.4 Are there restrictions on the price offered or its form (cash or shares)?
If the buyer is obliged to launch a tender offer, the offered price must be fair.
Regulations also provide that if the buyer has purchased shares of the same kind as those targeted in the tender offer within the 90 calendar days immediately before the issuance of the tender offer, the offered price cannot be lower than the higher price paid by the acquiring party in the previous transactions. When the acquiring party has already executed commitments with the controlling shareholder of the target company or any other shareholder with right to participate in the tender offer, the price cannot be lower than the one agreed with those parties in those commitments.
According to the CNV rules, the price must be paid in cash, implemented as a swap, or a combination of both.
3.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
The CML grants minority shareholders certain exit rights in the event that a single shareholder, or group of shareholders, become a so-called quasi-total controlling shareholder of a public company. On the other hand, it also provides for a squeeze out mechanism in favour of the quasi-total controlling shareholder, provided certain additional requirements are met.
According to the CML quasi-total control means holding 95% or more of the company's share capital.
3.6 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?
Minority shareholders are entitled to benefit from any payable control premium. A number of objective criteria must be met to ensure fair and equal treatment of minority shareholders.
All mandatory offer rules apply upon change of control, thus ensuring minority shareholders will not be prejudiced by the payment of any control premium or differential pricing for selected shareholders.
3.7 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?
Section 86 of the CML allows conditional offers. Conditions are limited to the occurrence of events that existence can be objectively verified.
Conditions must be clearly described and highlighted in the offer prospectus. Before making the offer, the prospective buyer must submit before the CNV a guarantee that it will be able to honour the obligations resulting from the acceptance of the offer. Furthermore, at the time of filing for authorisation of the offer, the board of the prospective buyer must declare that it has the financial resources to honour the offer.
Section 4: TAX CONSIDERATIONS
4.1 What are the basic tax considerations and trade-offs?
The main tax considerations in M&A transactions in Argentina are the following:
Capital gains (income tax)
Profits derived from the transfer of shares are subject to Argentine income tax in the following scenarios:
capital gains obtained by Argentine entities derived from the sale, exchange or disposition of shares by any other means are subject to income tax at a rate of 35% on net income;
capital gains obtained by individuals who are Argentine residents are subject to income tax at a rate of 15% on net income;
capital gains obtained by foreign beneficiaries (whether individuals or entities) are also subject to income tax. Foreign beneficiaries may elect between an effective tax rate of 13.5% of the selling price or 15% of the 'real' net income. If the seller and buyer are non-Argentine residents, the buyer is liable for the payment of the tax.
Stamp tax is a local tax that is levied on the formal execution of public or private instruments, either: (i) executed in Argentina; or (ii) executed abroad if it produces effects in one or more local jurisdiction(s) within Argentina.
4.2 Are there special considerations in cross-border deals?
Until relatively recently capital gains obtained by foreign residents were exempt. This exemption has been repealed, although foreign shareholders are still taxed at a lower rate.
Section 5: ANTI-TAKEOVER DEFENCES
5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
The lack of a developed capital market and the rarity of hostile takeovers in Argentina means that local companies have not seen any need to include anti-takeover defences in their organisational documents.
However, when found, defensive measures used in Argentina include: (i) provisions in the articles of incorporation restricting the transfer of shares; (ii) increased quorum and supermajority requirements for shareholders' meetings; and (iii) staggered-term boards.
So-called poison pills are rare in Argentina.
5.2 How do targets use anti-takeover defences?
Many of the potential defences are decisions that require shareholders' approval, even if not implemented for defensive purposes.
Besides, under Argentine law the board of directors is limited on the actions it can take to block a takeover bid, since the directors can only act in the company's interest.
5.3 Is a target required to provide due diligence information to a potential bidder?
The target company is not required to do so by law. Note that public companies are subject to reporting requirements and the relevant information is publicly available through the CNV's website.
5.4 How do bidders overcome anti-takeover defences?
The main anti-takeover defence consists of the mandatory tender offer required by the CML once a certain percentage of votes in the company is controlled. A bidder would have to make the mandatory tender offer to take over a local company. However, in practice a bidder would first negotiate with the controlling shareholder.
5.5 Are there many examples of successful hostile acquisitions?
Section 6: DEAL PROTECTIONS
6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
While negotiating a friendly deal, it is common to execute a letter of intent or memorandum of understanding. This includes no shop or other exclusivity clauses to prevent the potential seller from negotiating with third parties during a certain time period.
If the acquisition of shares is made through a tender offer, other competing bids may be issued. In order for a bid to be considered a competing bid, it must be targeted to the same shares as the original tender offer and certain requirements must be met.
6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
There are no specific limits. Nevertheless, the terms cannot be abusive or generate any damages to the target company due to the lack of commitment in closing the transaction for causes not related to the deal itself.
Section 7: ANTITRUST/REGULATORY REVIEW
7.1 What are the antitrust notification thresholds in your jurisdiction?
There are three requirements for a transaction to be subject to merger control: (i) if the transaction is an economic concentration pursuant to the Antitrust Law; (ii) if the volume of business of the companies involved in the transaction exceeds the threshold established by the Antitrust Law; and (iii) the exemptions established by the Antitrust Law would not be applicable.
If those requirements are met, the transaction must be notified within seven days after closing (meaning the effective transfer of shares or takeover of control).
7.2 When will transactions falling below those thresholds be investigated?
If the transaction does not meet the thresholds the Antitrust Commission would not be able to carry out a merger review process.
7.3 Is an antitrust notification filing mandatory or voluntary?
Filing is mandatory.
7.4 What are the deadlines for filing, and what are the penalties for not filing?
Notification must be served within one week of the first to occur of either the date that any transfer effectively occurs or the publication of any cash tender or exchange offer.
The parties will be subject to a fine of up to ARS$1,000,000 ($68,500) for each day they fail to comply with this requirement.
7.5 How long are the antitrust review periods?
The approval period can take from 24 to 36 months counted from the filing, even for non-complex transactions. The current change in the administration of the Antitrust Commission may speed up the proceedings.
7.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
If a transaction meets the notification criteria and is not reported, the Antitrust Commission can impose a penalty, even if it is a negligible transaction with no effect on the market.
Section 8: ANTI-CORRUPTION REGIMES
8.1 What is the applicable anti-corruption legislation in your jurisdiction?
Anti-corruption legislation is mainly contained in three pieces of legislation which together make up what is known as the Public Ethics Legislation.
The Public Employee Act also contains provisions that deal with anti-corruption measures.
8.2 What are the potential sanctions and how stringently have they been enforced?
The Argentine legal system does not set out corporate criminal liability in regard to corruption; only individuals are subject to criminal anti-corruption law.
These penalties include: (i) imprisonment ranging from one month to 12 years, depending on the crimes involved, (ii) debarment from public office, which could be perpetual.
Section 9: OTHER MATTERS
9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
In collaboration with senior associate Maria Laura Bolatti Cristofaro.
First published by our sister publication IFLR magazine. Take your free trial today.
Pablo A. Artagaveytia
Marval O'Farrell & Mairal
About the author
Pablo A. Artagaveytia joined Marval, O'Farrell & Mairal in 1995 and became a partner in 2000. He specialises in commercial and corporate law. His professional work includes all areas of commercial law, advising on stock purchase agreements, distribution agreements, legal auditing, structuring of local companies, foreign business operations and general legal assistance particularly focusing on the Mercosur region. In 1998 and 1999 he went on secondment to the Brazilian firm Demarest & Almeida.
Barbara V. Ramperti
Marval O'Farrell & Mairal
About the author
Barbara Ramperti was promoted to partner in 2012. She has 18 years' experience in corporate law and is an expert in M&A, joint ventures, reorganisations, and general corporate and contractual matters. She has advised national and international clients within different industries and participated as leading counsel in high profile M&A transactions and complex cross-border deals, providing support in the negotiation process, analysis of corporate structures and funding mechanisms. She also provides advice on a daily basis to Fortune 500 companies.