Mergers and Acquisitions 2017

Last verified on Thursday 9th March 2017

Venezuela

Fulvio Italiani
D'Empaire Reyna Abogados
  1. 1.

    Has the level of M&A activity slowed, increased, or remained flat in 2016 as compared to 2015, and what are conditions like today? In general terms, what level of activity is foreseen for 2017? What are the factors influencing the level of M&A activity – Economic? Political? Commodity prices? Weakness in currency? Liquidity? Rule of law? Other?

  2. The current level of M&A activity (moderate) and existing conditions remain the same as in 2016 and in 2015. We continue to see regional or worldwide M&A transactions and a surge of sales of Venezuelan subsidiaries by US and other multinationals at attractive prices to Venezuelan or Latin American investors with high risk appetite. We expect the level of activity during 2017 to remain the same with respect to regional or worldwide M&A transactions that include the purchase of Venezuelan companies. The main factors influencing the level of M&A activity in Venezuela are governmental regulations, exchange control restrictions and political and economic environment and prospects.

  3. 2.

    Which industries do you expect will see the most M&A activity in 2017?

  4. We believe that the industries that may have the most M&A activity this year will be the manufacturing, financial and oil and gas industries.

  5. 3.

    What types of deals do you expect to see?

  6. We expect more sales of Venezuelan subsidiaries by multinationals at attractive prices. We may also see minority investments by oil and gas companies (private or state-owned) in joint ventures with the Venezuelan govern­ment, provided that the government offers such investors adequate levels of legal protection (including settlement of disputes by international arbitration). In any event, the existing exchange control restrictions and the political and economic environment and prospects will continue to affect the level and type of future M&A activity.

  7. 4.

    Discuss the level of M&A activity you have seen over 2016 and expect to see in 2017 of:
    (i) pure domestic deals;
    (ii) deals in your jurisdiction involving a domestic target and foreign acquirer from Latin America, or a foreign acquirer from outside Latin America; and
    (iii) deals involving a domestic acquirer and foreign target in Latin America or a foreign target outside Latin America.

  8. The level of M&A activity during 2016 for domestic deals was moderate and mainly fuelled by purchases of local subsidiaries of multinationals by Venezuelan or Latin American investors with high risk appetite. We expect this trend to continue during 2016. The level of M&A activity during 2016 for deals involving a domestic target and a foreign acquirer from Latin America, or a foreign target outside of Latin America, was moderate and we expect this activity to remain similar during 2017 with respect to regional or worldwide M&A transactions that include the purchase of Venezuelan companies.

  9. 5.

    What is the level of private equity activity? Are domestic or international funds involved? What kinds of deals are they doing?

  10. We have seen the participation of several international private equity firms in private auctions of Latin American companies (or Latin American divisions of multinational companies) having a presence in Venezuela. We have not seen domestic private equity firm activity.

  11. 6.

    Is acquisition financing available for deals? For strategic buyers? For private equity buyers? From domestic or international sources? What amount of debt/ equity leverage are you seeing in private equity transactions? Where is financing coming from – domestic sources, international lenders? Governmental agencies? Banks or capital markets?

  12. There is very little financing available for deals as a result of existing current local conditions.

  13. 7.

    How open is your country to investments and acquisitions by foreign buyers? Is there a level playing field when foreign and domestic bidders compete to buy the same domestic target company?

  14. Venezuela is considered a country open to foreign buyers as there are only a few areas currently reserved for companies owned or controlled by Venezuelan investors, such as open-air television, radio broadcasting, newspapers in Spanish, professional services regulated by law and commercial national air transportation. There are other areas, such as oil, that are reserved to the Venezuelan government in which foreign investors may participate only through minority participations in joint venture companies with the Republic or Venezuelan state-owned companies. In all other cases, foreign and domestic bidders compete equally.

  15. 8.

    Are corruption and compliance concerns affecting M&A activity?  Are there industries where this is a particular issue?

  16.  Companies have become increasingly aware of the importance of corruption and compliance issues in Venezuela. In M&A transactions, FCPA and other international anti-corruption statutes are important issues that must be revised in the course of a due diligence.

  17. 9.

    How big a part of M&A activity is the restructuring of financially troubled companies? Have you seen more of this in 2016 as compared with 2015? What are the prospects for 2017?

  18. There has been no M&A activity involving financially troubled companies in Venezuela, and we do not expect that this will be an active area during 2017.

  19. 10.

    Does your country’s bankruptcy law permit the reorganisation of the debtor as a going concern, and the acquisition of the entity out of bankruptcy? Are you seeing much activity in this area?

  20. Venezuela’s bankruptcy law is too outdated and inadequate to permit the re­organisation of the debtor as a going concern and the acquisition of entities out of bankruptcy. Under Venezuelan bankruptcy laws, insolvent companies that file for bankruptcy or reorganisation generally lose control of their businesses and assets, and become controlled by a receiver and the bankruptcy judge; creditors have less control in the process compared to bankruptcy proceedings in other jurisdictions. Therefore, there is a big incentive for debtors and creditors to seek to restructure the companies out of bankruptcy proceedings and to agree on private standstill agreements to allow for such restructurings.

  21. 11.

    Has there been any increase in shareholder activism and hostile takeovers? Are international hedge funds active in your market? What defences are target companies permitted to adopt?

  22. There has been no increase in hostile takeover activity. There are very few publicly listed companies in Venezuela. Several of these companies have implemented (or, from time to time, continue to implement) traditional defences against hostile takeovers in line with existing international standards, such as repurchases, poison pills and supermajority provisions, among other measures. International hedge funds are not active in Venezuela.

  23. 12.

    How well protected are minority shareholders in public companies? What recent developments have there been as relates to independent directors, special committees, independent advisors, fairness opinions?

  24. There are certain protective provisions in Venezuelan law; however, there are very few publicly listed companies in Venezuela and there are no recent developments regarding the protection of minority shareholders. 

  25. 13.

    Have directors, management and controlling shareholders changed how they conduct themselves in M&A deals? What kind of fiduciary duties do directors, management and controlling shareholders have under the laws of your jurisdiction? From your experience, are directors, management and controlling shareholders more diligent today in their review of M&A transactions and other matters?

  26. Directors of Venezuelan companies have become increasingly aware of the importance of conducting themselves in M&A transactions in compliance with existing Venezuelan tender offer rules. Such rules are in line with international standards. For example, the rules require a decision by the board to recommend, discourage or express no opinion on the tender offer, along with the preparation of a statement explaining the reasoning behind such decisions and supplying other information. Directors of Venezuelan companies have been particularly involved in the defence process against hostile takeovers. The most typical response of Venezuelan target companies has been the implementation of repurchase plans to seek to increase the price offered by the unsolicited bidder. This occurred in the tender offer of AES for EDC, in the tender offer of AES for CANTV and in the tender offer of Telmex/America Movil for CANTV.

  27. 14.

    Should directors, management and controlling shareholders be more concerned today about negative publicity, shareholder criticism, regulatory pressure and liability from potential litigation?

  28. No.

  29. 15.

    Are there major differences in how domestic and cross-border deals are being conducted? For instance, does the type of purchase agreement used in your jurisdiction differ significantly from the international style of agreement? If so, which type is being used more often?

  30. In general, M&A transactions in Venezuela are conducted in a fashion similar to those in other jurisdictions, namely:

    • the signing of confidentiality agreements or non-binding letters of intent;
    • due diligence investigation;
    • negotiation of stock or asset purchase agreement;
    • signing of the agreement;
    • disclosure of the transaction;
    • tender offer process (in case of publicly listed companies); and
    • closing of the transaction.

    The purchase agreement generally contains representation and warranties, indemnification and closing conditions customary for M&A transactions in other jurisdictions. The conditions for closing are frequently the subject of lengthy negotiations between seller and purchaser given the rapidly changing regulatory environment.

    One particular difference from other countries is that in Venezuela the purchase agreement is generally signed between the purchaser and the shareholder or shareholders of the target company, instead of the target company itself. On the other hand, there is no procedure in Venezuela that allows the squeeze-out of shareholders of a Venezuelan company.

  31. 16.

    Have there been changes in the process for how M&A transactions are conducted in your jurisdiction?

  32. No.

  33. 17.

    Do domestic buyers have a greater tolerance than multinational buyers for risk in transactions, such as (i) assuming risk of tax, labour, environmental and other contingencies; (ii) assuming risk of regulatory approvals; or (iii) bearing the risk of non-compliance/corruption issues at the target company? If so, does this give domestic buyers a competitive advantage over international buyers? 

  34. Yes, domestic buyers have a greater tolerance than multinational buyers for risk in transactions in Venezuela. FCPA and other international anti-corruption statutes are important issues that must be revised in the course of a due diligence. 

  35. 18.

    For international buyers and investors looking at deals in your jurisdiction, what are the three most important pieces of advice you have and what are the three most important pitfalls that should be avoided?

  36. First, implement strict rules and precautions to ensure the confidentiality of the preliminary negotiations involving the potential purchase of a Venezuelan company.

    Second, properly address Venezuelan legal and non-legal issues, including PR and social issues.

    Finally, work closely with the applicable Venezuelan authorities from the outset to address any legal, tender offer, regulatory, consumer protection, social or other issues that the proposed transaction may raise.

  37. 19.

    Have there been any significant regulatory developments affecting M&A – your country's securities exchange commission, antitrust regulators, tax authorities, Central Bank, other regulators that review deals etc? 

  38. No.

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Questions

  1. 1.

    Has the level of M&A activity slowed, increased, or remained flat in 2016 as compared to 2015, and what are conditions like today? In general terms, what level of activity is foreseen for 2017? What are the factors influencing the level of M&A activity – Economic? Political? Commodity prices? Weakness in currency? Liquidity? Rule of law? Other?


  2. 2.

    Which industries do you expect will see the most M&A activity in 2017?


  3. 3.

    What types of deals do you expect to see?


  4. 4.

    Discuss the level of M&A activity you have seen over 2016 and expect to see in 2017 of:
    (i) pure domestic deals;
    (ii) deals in your jurisdiction involving a domestic target and foreign acquirer from Latin America, or a foreign acquirer from outside Latin America; and
    (iii) deals involving a domestic acquirer and foreign target in Latin America or a foreign target outside Latin America.


  5. 5.

    What is the level of private equity activity? Are domestic or international funds involved? What kinds of deals are they doing?


  6. 6.

    Is acquisition financing available for deals? For strategic buyers? For private equity buyers? From domestic or international sources? What amount of debt/ equity leverage are you seeing in private equity transactions? Where is financing coming from – domestic sources, international lenders? Governmental agencies? Banks or capital markets?


  7. 7.

    How open is your country to investments and acquisitions by foreign buyers? Is there a level playing field when foreign and domestic bidders compete to buy the same domestic target company?


  8. 8.

    Are corruption and compliance concerns affecting M&A activity?  Are there industries where this is a particular issue?


  9. 9.

    How big a part of M&A activity is the restructuring of financially troubled companies? Have you seen more of this in 2016 as compared with 2015? What are the prospects for 2017?


  10. 10.

    Does your country’s bankruptcy law permit the reorganisation of the debtor as a going concern, and the acquisition of the entity out of bankruptcy? Are you seeing much activity in this area?


  11. 11.

    Has there been any increase in shareholder activism and hostile takeovers? Are international hedge funds active in your market? What defences are target companies permitted to adopt?


  12. 12.

    How well protected are minority shareholders in public companies? What recent developments have there been as relates to independent directors, special committees, independent advisors, fairness opinions?


  13. 13.

    Have directors, management and controlling shareholders changed how they conduct themselves in M&A deals? What kind of fiduciary duties do directors, management and controlling shareholders have under the laws of your jurisdiction? From your experience, are directors, management and controlling shareholders more diligent today in their review of M&A transactions and other matters?


  14. 14.

    Should directors, management and controlling shareholders be more concerned today about negative publicity, shareholder criticism, regulatory pressure and liability from potential litigation?


  15. 15.

    Are there major differences in how domestic and cross-border deals are being conducted? For instance, does the type of purchase agreement used in your jurisdiction differ significantly from the international style of agreement? If so, which type is being used more often?


  16. 16.

    Have there been changes in the process for how M&A transactions are conducted in your jurisdiction?


  17. 17.

    Do domestic buyers have a greater tolerance than multinational buyers for risk in transactions, such as (i) assuming risk of tax, labour, environmental and other contingencies; (ii) assuming risk of regulatory approvals; or (iii) bearing the risk of non-compliance/corruption issues at the target company? If so, does this give domestic buyers a competitive advantage over international buyers? 


  18. 18.

    For international buyers and investors looking at deals in your jurisdiction, what are the three most important pieces of advice you have and what are the three most important pitfalls that should be avoided?


  19. 19.

    Have there been any significant regulatory developments affecting M&A – your country's securities exchange commission, antitrust regulators, tax authorities, Central Bank, other regulators that review deals etc? 


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