By: Andre Jerusalemy and José Henrique

As seen previously, mergers and acquisitions (M&A) operations are strategies in which two or more companies come together to form a new company, in the case of a merger, or the acquisition of share capital (equity) in full or in part.

However, such transactions are rarely straightforward, since the acquisition of a company involves numerous commercial conditions that are generally negotiated between the parties, as well as risks (existing and/or potential) that may arise from the business activity itself. Additionally, in the case of transactions involving publicly-held companies, certain regulatory aspects must also be taken into consideration, since such transactions may impact the stock markets.

Below, we will list some of the main aspects that must be taken into consideration in M&A transactions when one of the parties is a publicly-held company with shares traded on the stock exchange, i.e., issuers registered in “category A”:

1. Signing of NDA and NBO:

Since the information about the transaction is sensitive, it is important that before any discussion about a potential M&A begins, a Confidentiality Agreement (or “NDA” – Non Disclosure Agreement) is signed, in order to preserve both sensitive information about the company to be negotiated, as well as the mere existence of the negotiations about the M&A.

This discretion is of essential importance, since at this stage the potential operation is still subject to several conditions, particularly the performance of due diligence, in which legal and financial advisors will evaluate various information about the target company, such as management and accounting data, the existence of internal policies, contingencies, among other information that is not publicly known.

In this sense, the signing of non-binding offers, also known by their acronym in English “NBO” (Non-Binding Offer) should also not generate any obligation to communicate to the market. As we will see below, communications to the market should only begin from the moment in which concrete acts or facts occur, that is, which are binding for the companies involved.

2. Disclosure of Relevant Fact:

Looking at it from another perspective, publicly-held companies must disclose acts or facts of a political-administrative, technical, business or economic-financial nature that occur or are related to their business, and that may have a significant influence on

ponderable from the moment they occur1. In this sense, some facts need to be public knowledge, known as “Relevant Facts”.

By way of example, the sole paragraph of article 2 of CVM Resolution 44, of August 23, 2021 (“Resolution 44”) contains some acts or facts that may be considered relevant for the purposes of disclosure to the market, including (i) the signing of an agreement or contract for the transfer of the company's share control, even if under a suspensive or resolutory condition2, and (ii) change in the company's control, including through the execution, amendment or termination of a shareholders' agreement3.

It is important to distinguish between a “Material Fact” and a “Market Announcement”: Market Announcements have more flexible characteristics and can be used whenever the investor relations director (or the company) believes that important information needs to be communicated to the market in order to avoid noise or disclose events considered important. Material Facts, on the other hand, address matters of greater importance that may have an impact on the markets and investors.

3. Disclosure of Information:

Without prejudice to the relevant information that must be included in the Material Fact, publicly-held companies must also pay attention to the disclosure of additional information required by current regulations, particularly CVM Resolution No. 78 of March 29, 2022 (“Resolution 78”). In this sense, said resolution provides that in M&A transactions, the material fact about a transaction must contain, at a minimum, the following information4:

a) Identification of the companies involved in the operation and a brief description of the activities they perform;

b) Description and purpose of the operation;

c) Main benefits, costs and risks of the operation;

d) Share replacement ratio;

e) Criteria for setting the replacement ratio;

f) Main active and passive elements that will form each portion of the assets, in the event of a split;

g) Whether the transaction has been or will be submitted for approval by Brazilian or foreign authorities;

h) In transactions involving controlling companies, controlled companies or companies under common control, the share replacement ratio calculated in accordance with art. 264 of Law No. 6,404 of 1976;

i) Applicability of the right of withdrawal and amount of reimbursement;

j) Other relevant information.

Additionally, according to article 6 of Resolution 78, financial information prepared by an independent auditor registered with the CVM and in accordance with the Corporation Law must also be disclosed, even if one of the companies involved is not a publicly-held company.

4. Acquisition of Shares – OPA

One of the most complex aspects involving M&A in publicly traded companies occurs in the event of the acquisition of shares traded on the market. This may occur when (i) a publicly traded company decides to stop trading its shares on the stock exchange, (ii) the controlling shareholder decides to increase its shareholding in the company; (iii) the controlling shareholder decides to sell its shareholding in the company, or (iv) for the acquisition of control of a publicly traded company when it involves an exchange for securities and an exchange for securities5.

To this end, under the terms of CVM Resolution 85/22, of March 31, 2022 (“Resolution 85”), a Public Offer for the Acquisition of Shares (OPA) must be carried out, which must necessarily observe the general procedure established in articles 4 to 10, 13 to 15 and 18 to 21 of resolution 85, where applicable, and in some cases a public offer must be made to carry out the OPA.