Eloy Alfaro B. and Rita de la Guardia of Alemán Cordero Galindo & Lee assess the M&A regulatory framework in Panama


1.1 What have been the key recent M&A trends or developments in your jurisdiction?

The level of M&A activity continued to be as high in 2015 as it was in 2014. In 2016, we expect this growth trend to continue, or at least for the level of activity to remain stable. Although there are no specific factors driving the increase in M&A activity, Panama's economic growth makes local companies more attractive targets.

1.2 What is your outlook for public M&A in your jurisdiction over the next 12 months?

We expect to see more outright acquisitions, as well as more mergers, minority investments and a few joint ventures. Outright acquisitions have historically been the most common type of deal. That trend will likely continue, specifically in the financial and energy sectors, which have seen the most M&A activity in recent years.


2.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?

The relevant legislation includes: the Commercial Code; the Civil Code; the Corporations Law; and the Limited Liability Company Law. There are also industry-specific regulations.

The primary regulator for M&A activity in Panama depends on the nature of the business undertaken by the target company. In all cases that may result in an economic concentration, the antitrust authority (Autoridad de Protección al Consumidor y Defensa de la Competencia, or Acodeco) could play an important role.

2.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?

Acodeco enforces takeover regulations. In the case of a takeover of a regulated entity, the relevant regulatory body may need to approve the transaction.


3.1 What are the basic structures for friendly and hostile acquisitions?

Hostile acquisitions are rare in Panama. Typically M&A deals take the form of a direct acquisition of a target company for cash consideration, or a special purpose vehicle created to hold the target.

3.2 What determines the choice of structure, including in the case of a cross-border deal?

Tax considerations usually determine the choice of structure, as the applicable taxes in Panama vary in the case of an acquisition of shares or an acquisition of assets.

3.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?

It depends on the industry and whether it is regulated. If a transaction requires regulatory approval, the process can take four to six months to complete, or even longer. In the case of public tender offers, the terms must include an acceptance period of no less than 30 days.

3.4 Are there restrictions on the price offered or its form (cash or shares)?

There are no restrictions on the price offered or its form. Cash is the most common form of consideration.

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 level of acceptance depends on the articles of incorporation. Panamanian law does not expressly contemplate squeeze outs. A squeeze-out mechanism (while not specifically prohibited) is untested. If contested by a minority shareholder who refuses to tender its shares, stating that the fact of being a shareholder is an acquired right, the outcome of such a test is unclear.

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?

Yes. A takeover offer of a public company must be made to all of the shareholders, with equal terms and conditions. The purchase price must be paid to all shareholders who accept the offer. If a bidder offers to purchase more than 25% of the shares of a public company, or offers to purchase any number of shares which would result in the bidder owning more than 50% of the issued and outstanding shares of the public company, the offer must be subject to the public tender offer rules under the securities laws. If the tender offer would result in the bidder owning more than 75% of the issued and outstanding shares of the public company, the offer must be made for all shares of the target that are not owned by the bidder.

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?

Buyers can make conditional offers. However, in the context of public tender offers, the securities law requires committed funding and the posting of a guarantee to cover the tender offer.


4.1 What are the basic tax considerations and trade-offs?

The direct or indirect transfer of shares of companies that have generated Panama source income is subject to capital gains tax at a rate of 10% on the gain realised. However, the buyer is required by law to withhold five percent of the total consideration payable to the seller and to tender this to the tax authorities within the following 10 business days, as an advance on the seller's capital gains tax payment. The buyer must file a capital gains tax return along with the tax payment. The seller has the option to consider the amount withheld by the buyer as its definitive capital gains tax. If the amount exceeds 10% of the capital gain realised on the sale, the seller may file, within the same fiscal year on which the transaction occurred, a sworn declaration before the tax authorities claiming a tax credit or refund for the amounts paid in excess.

The transfer of shares of companies that produce Panama source income is not subject to value-added tax (VAT), stamp duty, documentary or registration tax, or any similar tax other than the capital gains tax.

However, the share purchase agreement of a company that has generated Panama source income would be subject to stamp taxes. Stamp taxes are calculated at a rate of $0.10 for each $100 of the price stated in the agreement.

4.2 Are there special considerations in cross-border deals?

Depending on the nationalities of the parties involved, a double-taxation treaty may exist between the countries. This may reduce the applicable tax rate. For listed companies, certain tax exceptions may apply.


5.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?

This is not specifically regulated or restricted in Panama, except for cases of a public tender offer, which includes certain takeover defences, established in Decree 45 of 1977.

5.2 How do targets use anti-takeover defences?

Defensive measures are not specifically regulated or restricted.

5.3 Is a target required to provide due diligence information to a potential bidder?

A target, in a hostile bid, is not required to provide due diligence information to a potential bidder.

5.4 How do bidders overcome anti-takeover defences?

Anti-takeover defences are rare in Panama.

5.5 Are there many examples of successful hostile acquisitions?

Hostile bids are rare in Panama.


6.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?

Because hostile bids are rare in Panama, defensive measures by directors are likewise rare.

6.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?

This type of deal protections is not specifically regulated in Panama. Although they are not prohibited, they are also generally untested.


7.1 What are the antitrust notification thresholds in your jurisdiction?

The relevant merger control legislation is: Law No. 45 of October 31 2007 (the Consumer Protection and Competition Defence Law); Executive Decree No. 8-A of January 22 2009, which regulates Title I (Monopoly) and other dispositions of Law No. 45 of October 31 2007; and Resolution No. A-31-09 of July 16 2009, through which Acodeco approves the Guide for the Control of Economic Concentrations and does not establish a specific threshold.

All transactions that fit into the economic concentration concept, as established by Law No. 45 of 2007, are caught. This includes any merger, acquisition of control or any other act by virtue of which corporations, partnerships, associations, shares, social parties, trusts, establishments, or assets in general are grouped together, that takes place between suppliers or potential suppliers, customers or potential customers and other competitors or potential competitors.

Certain sectors, such as energy, have specific thresholds.

Internal restructurings or reorganisations are not included in the concept of economic concentrations.

7.2 When will transactions falling below those thresholds be investigated?

Panama does not have specific threshold requirements. Rather, Acodeco looks into economic concentration.

7.3 Is an antitrust notification filing mandatory or voluntary?

Prior notification of a potential economic concentration is voluntary. If the parties decide to voluntarily notify in advance, they must do so before the merger has taken effect (ie. before there has been a change in control).

Parties typically file prior notifications of an economic concentration when there are circumstances surrounding the transaction (ie. market share) that increase the risk of an investigation by Acodeco.

7.4 What are the deadlines for filing, and what are the penalties for not filing?

Given that prior notification is voluntary, there is no prohibition on closing before clearance. However, Acodeco or third parties may challenge the transaction within three years if it is not cleared before it takes place.

7.5 How long are the antitrust review periods?

If prior notification is filed, Acodeco must review within 60 days of the date on which notification is filed or additional information requested by Acodeco is provided. If Acodeco does not issue a response within 60 days, the concentration is deemed to be approved. If Acodeco reviews the transaction directly, it has up to three years to complete its review of the transaction.

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?

Acodeco can investigate and challenge economic concentrations which have not submitted to prior verification, within a three year period from the date on which change of control occurred. Acodeco only has jurisdiction to review and impose penalties if there is an economic concentration in Panama.

7.7 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?

There are no foreign ownership restrictions in Panama. Regulated entities have certain restrictions and prior approval requirements that may impede a change of control. There are no national security or labour specific restrictions. The energy regulator also imposes limits on concentration that may need to be taken into account.


8.1 What is the applicable anti-corruption legislation in your jurisdiction?

There is no specific anti-corruption legislation in Panama. Anti-corruption provisions are included in several laws, including the criminal code.

8.2 What are the potential sanctions and how stringently have they been enforced?

There are civil sanctions as well as criminal sanctions. Enforcement of these has increased recently.


9.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?



  First published by our sister publication IFLR magazine. Take your free trial today.


Eloy Alfaro B.
Alemán Cordero Galindo & Lee
Panama City

About the author
Eloy Alfaro joined Alemán Cordero Galindo & Lee as an associate in 2004 and became a partner in 2011. His professional practice concentrates on banking, finance and capital markets, corporate and M&A, public bids and concession contracts and real estate law. He has been active in M&A, assisting clients such as Citibank, the Bank of Nova Scotia and BBVA in banking acquisitions, mergers and dispositions in Panama, as well as assisting several other international banks and companies in cross-border financing transactions. He has also advised Panamanian and international clients in important public bid projects, including: the contractor Grupo Unidos por el Canal in the third set of locks contract for the expansion of the Panama Canal, London & Regional (Panama) in the master development of the former Howard Air Force Base, and most recently Vinci Construction Grands Projects in the construction of a third suspension bridge over the Panama Canal. He has a Juris Doctor from the University of Pennsylvania Law School, and a Bachelor of Arts in Political Science from Columbia University. He is a member of the National Bar Association of Panama. He is fluent in Spanish and English.

Rita de la Guardia
Alemán Cordero Galindo & Lee
Panama City

About the author
Rita de la Guardia joined Aleman Cordero Galindo & Lee in 2014. Her professional practice concentrates on banking, finance and capital markets, corporate and M&A. She has been active in M&A, assisting clients such as Citibank and Celsia. She has a J.D. from Cornell Law School and a Bachelor's of Science in Foreign Service from Georgetown University. She is a member of the National Bar Association of Panama. She is fluent in Spanish and English.