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07 June 2006
The Portuguese mergers and acquisitions market has been buoyant in recent months. Two deals have been of particular importance. In February 2006 Sonae SGPS SA and Sonaecom SGPS SA announced a takeover bid for two telecommunications and media companies from the same group: Portugal Telecom SGPS SA (PT), the parent holding company, and PT Multimédia SGPS SA. In March 2006 it was the banking sector's turn to be hit by mergers and acquisitions fever. Banco Comercial Português SA (BCP), Portugal's biggest private bank, launched a takeover bid for Banco BPI SA, a smaller but very lucrative Porto-based bank.
The bid for PT and PT Multimedia, two very large and influential companies in the Portuguese telecommunications and media sector, by a smaller corporate group was praised by most of the players in the market, despite antitrust concerns over the company which would be created as a result. The transaction was valued at around €16 billion, making it the biggest merger deal in Portugal's history.
The BCP and BPI merger involves two of Portugal's largest and most successful banks. The deal is valued at almost €4.3 billion, making it the second biggest European merger deal in the financial sector in 2006.
The deals have developed since their announcement. Both were considered to be hostile takeovers by the boards of directors of the target companies and shareholders were recommended not to sell their shares to the bidders.
The target companies are listed on Euronext Lisbon and are therefore under the supervision of the Portuguese securities regulator, the Comissão do Mercado dos Valores Mobiliários (CMVM). The actions of the boards of directors of both target companies have been under scrutiny, particularly in respect of the limitations on the defensive measures - known as 'poison pills' - at the disposal of a target company in the event of a hostile takeover.
Article 182(1) of the Securities Code states that:
Article 182(2)(b) provides examples of the actions which may be considered to be defensive measures, specifically identifying (i) an issue of shares or other securities conferring the right to subscribe to shares, and (ii) the agreement of a contract to sell significant elements of the company's assets. However, Article 182(3)(b) states that the target company may use a poison pill which would otherwise be prohibited by Article 182(1) if (i) the underlying action is necessary to perform obligations undertaken before the launch of the bid, or (ii) a general shareholders' meeting convened specifically for the purpose authorizes the action. Such a resolution must be passed by the majority of shareholders necessary to pass an amendment to the company's articles of association (Article 182(4)).
In both mergers the CMVM was asked to clarify these provisions. It confirmed that the specific purpose of the meeting must be respected (ie, the meeting must be convened with the sole purpose of assessing and either approving or rejecting the adoption of defensive measures against the takeover). If this requirement is not met, the shareholders' resolution may be declared invalid by a court of law. However, once they have received notice of the general meeting, shareholders may propose other matters for inclusion in the agenda, in accordance with Article 378 of the Company Code.
In addition to the fulfilment of the legal requirements set out in Article 377 of the Company Code, the CMVM stated that, in accordance with its interpretation of the applicable law, the notice of the meeting must (i) refer to the fact that the matters to be discussed are potentially subject to the provisions of Article 182 of the Securities Code, and (ii) state that a qualified majority of votes will be necessary in order for the defensive measures to be adopted. Pursuant to Article 58 of the Company Code, the resolution may be deemed invalid if this information has not been given to the shareholders.
Share buyback programmes and the issuing of convertible bonds were included in the agendas of the target companies' annual general meetings. These actions were considered to be defensive measures by the CMVM, which held that they should be the object of separate and independent meetings and could not be included in the agendas. Despite arguing against this interpretation, the target companies removed the items from the agendas; the measures will be debated and possibly approved at later meetings.
These mergers - and many smaller processes - demonstrate that the mergers and acquisitions market has greater confidence in the stability and growth of the Portuguese economy. Moreover, the recent amendments to the Company, Notary and Commercial Registry Codes have considerably reduced the administrative requirements involved in these procedures, which will certainly be an incentive to companies to become more active in the market. Recent rumours regarding the involvement of Portuguese companies in both national and cross-border mergers suggest that the wave of transactions has not yet reached its peak.
For further information on this topic please contact João Caldeira or Vasco Rodrigues at Rui Pena, Arnaut & Associados - Sociedade de Advogados by telephone (+351 21 382 8150) or by fax (+351 21 382 8155) or by email (firstname.lastname@example.org or email@example.com).
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