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REVIEW OF LISTING RULES FOR THE NOVO MERCADO AND CORPORATE GOVERNANCE LEVELS 1 AND 2

REVIEW OF LISTING RULES FOR THE NOVO MERCADO AND CORPORATE GOVERNANCE LEVELS 1 AND 2. Release for the Closed Hearing July 7, 2010. Agenda. Background information. Next stages. Closed hearing. Revision topics. Reasons for the review process. Reasons

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REVIEW OF LISTING RULES FOR THE NOVO MERCADO AND CORPORATE GOVERNANCE LEVELS 1 AND 2

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  1. REVIEW OF LISTING RULES FOR THE NOVO MERCADO AND CORPORATE GOVERNANCE LEVELS 1 AND 2 Release for the Closed Hearing July 7, 2010

  2. Agenda Background information Next stages Closed hearing Revision topics

  3. Reasons for the review process • Reasons • Development and growth of both the equities market and the very issuers, as is the case, for example, of wider dispersion of stock ownership • Need for improvement of corporate governance practices, whose vulnerabilities were unveiled by the international financial crisis • The improved regulatory environment prevailing in the Brazilian capital markets; the process of convergence to IFRS started with the enactment of Law No. 11,638/07; the heightened transparency requirements conveyed under CVM Instruction No. 480/09 • Objectives • Sustaining the value of BM&FBOVESPA’s special listing segments, and their differential and attractivity for investors and issuers • Preserving the value of the Novo Mercado as a local and international benchmark

  4. Review process • Wider and comprehensive debate • Relevance of a wider debate, instead of a process confined to our own perception. • Solutions to draw all stakeholders to the debate: • Establishing the Novo Mercado Advisory Committee (Câmara Consultiva do Novo Mercado), or CCNM; • Organizing discussion forums having the issuers as target audience; • Organizing open seminars.

  5. Review stages Novo Mercado Advisory Committee (CCNM) • October 2008: formed the Novo Mercado Advisory Committee (Câmara Consultiva do Novo Mercado), or (CCNM), as a body composed of 21 external members, including investors, issuers, lawyers, investment banks and market associations. • November 2008 - January 2009: The CCNM was divided in smaller working groups for analysis of specific topics. • February - March 2009: the key items defined for review were circulated to about 50 market entities for additional feedback. • April 2009: recommendations were submitted to the board of directors of BM&FBOVESPA Discussion forums for issuers • June 2009: first round of discussion forums (comprising 16 events attended by representatives of about 100 issuers listed on all corporate governance segments) • Special discussion forum for debate of the tender offer requirement in the event of accumulation of material ownership interest “Challenges of the Novo Mercado” seminars • Held on September 3 and 10, 2009, in Rio de Janeiro and São Paulo, respectively • Special panels discussed the most sensitive topics • 27 lecturers and over 700 attendees, in addition to the specialized press

  6. Review stages (cont’d.) • October 15, 2009: End of the period for issuers’ to respond to the proposed changes • The board of directors of BM&FBOVESPA met to evaluate the CCNM recommendations and consider the feedback received from issuers and the Exchange’s technical staff (Board meeting held in December 2009) • January 2010: Completion of the first draft rules • January – March 2010: First draft listing rules circulated to specialists for analysis and feedback • April – May 2010: Completion of the second draft rules • May 2010: Seminars held for presentation and discussion of the second draft rule • June 2010: Refined drafts were submitted to the board of directors of BM&FBOVESPA and approved for presentation at a closed hearing

  7. Agenda Background information Next stages Closed hearing Revision topics

  8. Next stages • Closed hearing • Draft rules to be refined based on feedback from the closed hearing • Final draft rulesto be submitted to approval by the board of directors of BM&FBOVESPA, along with the sanctions for noncompliance with the revised regulations • Revised rules to be forwarded for CVM approval • Issuers to be communicated of the final wording and date of effectiveness of the revised rules. • The revised rules are expected to take effect between October and November 2010 • Rules whose enforcement requires issuers to act promptly to amend the bylaws – deadline typically expiring within six months or the date on which the annual shareholders’ meeting next convenes, whichever is later. • Rules requiring the bylaws to be adjusted for conformance with the revised rules – deadline typically expiring within 3 years.

  9. Agenda Background information Next stages Closed hearing Revision topics

  10. Closed hearing • 30-day period: from July 7 through August 6, 2010 • This will be a closed hearing in which only issuers whose securities trade on any of our special listing segments will be allowed to participate and offer feedback. Following the hearing period, feedback provided by issuers will be released to the market through the Internet. • The proposed changes have been grouped by topic (groups of related subjects). • Documents submitted to the closed hearing: • Draft revised listing rules • Form detailing the topics addressed in the draft regulations • Sanctions regulation and related Annex I • All documents are available in the Internet, at http://www.bmfbovespa.com.br/empresas

  11. Closed hearing(cont’d.) • The revised rules may only be adopted if not opposed by more than one-third (1/3) of the issuers voting in each listing segment: • Segments(*) ___ N1 N2 NM • Issuers 35 19 105 (**) • Veto threshold 11 6 35 • (*) as of July 6, 2010 • (**) BM&FBOVESPA’s vote will not be computed for purposes of determining a quorum to veto or approve the changes.

  12. Agenda Background information Next stages Closed hearing Revision topics

  13. Principal changes –Novo Mercado regulation • Tender offer requirement triggered of accumulation of material ownership interest • Trigger – accumulation of a 30% ownership interest • Bid price – highest price the bidder paid for company shares in the preceding12-month period • The shareholders’ meeting may dispense the tender offer • Currently listed issuers whose bylaws include poison pill provisions will be dispensed with fulfilling the tender offer requirement. • Requirements related to the board of directors • Increasing to 30% (from 20%) the percentage of independent directors (*) • No accumulation of the positions of chairman of the board and CEO (*) • Mandatory establishment of an audit committee(*) • Requirement for the Board of Directors to advise the shareholders and the market on the terms and conditions of any tender offer • (*) 3-year adjustment period

  14. Principal changes – Novo Mercado regulation (cont’d.) • Restrictions to disallow certain bylaws provisions • Requiring qualified majority vote (qualified quorum) • Entrenched provisions (“CláusulaPétrea”) • Poison pill provisions • Voting limitation – no limitation permitted under 5% of the shares • Mandatory adoption and release of • Securities trading policy • Code of Conduct

  15. Principal changes –Level 2 listing regulation • Tag along rights for sale of preferred shares at 100% of the price offered for control • Currently listed issuers whose bylaws already include tag along provisions for sale at less than 100% of the price offered for control will be dispensed with the requirement • Requirements related to the board of directors • Increasing to 30% (from 20%) the percentage of independent directors (*) • No accumulation of the positions of chairman of the board and CEO (*) • Mandatory establishment of an audit committee (*) • Requirement for the Board of Directors to advise the shareholders and the market on the terms and conditions of any tender offer • (*) 3-year adjustment period • Restrictions to disallow certain bylaws provisions • Requiring qualified majority vote (qualified quorum) • Entrenched provisions (“CláusulaPétrea”)

  16. Principal changes –Level 2 listing regulation (cont’d.) • Voting limitation – no limitation permitted under 5% of the shares • Mandatory adoption and release of • Securities trading policy • Code of Conduct

  17. Principal changes –Level 1 listing regulation • Requirements related to the board of directors • Board composed of a minimum of 5 members elected for unified 2-year terms (*) • At least 20% must be independent directors (*) • No accumulation of the positions of chairman of the board and CEO (*) • Mandatory establishment of an audit committee (*) • (*) 3-year adjustment period • Mandatory adoption and release of • Securities trading policy • Code of Conduct

  18. Summary of changes –Novo Mercado • Summary of material changes to the regulation for the Novo Mercado: • Purpose (subsection 1.1) • Certain definitions (Section II) • Voting limitation (subsection 3.1.1) • Restrictions to disallow qualified quorum provisions; entrenched provisions (“CláusulaPétrea”); tender offer requirements other than established in the regulation (subsection 3.1.2) • Board of directors (Section IV): higher percentage of independent directors (30%); no accumulation of positions; disclosure of positions held by directors, fiscal council and committee members; mandatory establishment of an audit committee; board to advise on the merits of a tender offer • Securities trading policy and code of conduct (subsections 6.8 and 6.9) • Tender offer triggered by accumulation of material ownership interest (Section IX) • Rules on voluntary and mandatory delisting from the Novo Mercado in the event of diffuse control (de facto or legal absence of a controlling shareholder) (Sections XII and XIII) • Transitory provisions (deadlines for adjustments to bylaws) (subsections 15.5)

  19. Summary of changes –Novo Mercado(cont’d.) • Summary of changes for conformance with CVM and other regulations: • Occasional and periodic reporting requirements (simplification) (Section VI) • Offering prospectuses (simplification; provision authorizing BM&FBOVESPA to require changes) (Section VII) • Summary of changes for improvement of the listing regulation based on past experience and for better wording: • Certain definitions(Section II) • Lock up rule (subsection 3.5.1) • Public meeting with analysts and calendar of corporate events (subsections 6.5 and 6.6) • Additional obligations of the acquirer of control (tag along rights) (subsection 8.2) • Ownership disclosure requirements (Section X) • Sanctions (Section XIII) • Arbitration (Section XIV) • Closed hearing (Section XV) • Unforeseen and exceptional events (subsection 15.4)

  20. Details on material changes • Purpose: the word “shareholders” was included so it will be clear the regulation applies not just to controlling shareholders, but to all shareholders of any particular issuer (subsection 1.1) • Definitions: the definitions now include “Group of Shareholders” and “Material Ownership Interest”; the definition for “diffuse control” has been deleted (Section II) • Controlling shareholder: the definition extends to de facto or legally defined controlling shareholders (shareholders agreement signatories) • Deletion of “diffuse control”: the situations that characterize diffuse control have been considered in the definition of “controlling shareholder” (as interpreted in conjunction with the definition of “group of shareholders”), such that there is no need to define “diffuse control.” In addition, de facto control is a dynamic concept that may occur in a number of instances, thus requiring verification on a case-by-case for application of the relevant listing rules. • The regulation applies to all shareholders, and so do the bylaws provisions required under the listing regulation.

  21. Details on material changes (cont’d.) • Voting limitation: no limitation permitted under 5% of the shares (subsection 3.1.1) • Restrictions to disallow: • Qualified majority vote provisions (qualified quorum to resolve)(subsection 3.1.2.i) • Provisions tending to prevent affirmative votes, or creating a burden for shareholders that vote to approve the deletion or amendment of certain bylaws provisions (“entrenched provisions”) (subsection 3.1.2.ii) • tender offer requirements other than established in the regulation (subsection 3.1.2 iii) • Transitory provisions (see the additional information is provided under the transitory provisions section) (subsections 15.5 and 15.6)

  22. Details on material changes (cont’d.) • Board of directors • Increased percentage of independent directors: from 20% currently, to 30% of the members (subsection 4.3) • No accumulation of positions (chairman of the board and CEO or lead executive) – an adjustment period is foreseen for both current issuers and entrants (subsections 4.4 and 4.4.1) • Disclosure of positions held by directors, fiscal council and committee members (subsections 4.5 and 4.5.1) • Mandatory establishment of an audit committee (subsection 4.8) • Requirement for the board of directors to advise shareholders as follows: (subsections 4.9 and 4.9.1) • On the merits of any tender offer to purchase the company shares • On the convenience and timing of the tender offer vis-à-vis the interests of shareholders and the impact on the company; on the merits of the strategic plan released by the bidder • Grounded opinion favoring or opposing the bid • Deadline: on or before 15 days after the publication of the bid notice or any act disclosing intent to conduct a tender offer (whichever is earlier)

  23. Details on material changes (cont’d.) • Tender offer triggered by accumulation of material ownership interest(Section IX) • Who is required to conduct a tender offer: the shareholder or group of shareholders individually or in the aggregate acquiring a material ownership interest under one or a series of transactions (subsection 9.1) • Material ownership interest is defined as an interest in 30% of the shares of voting stock (subsection 9.1) • Bid price: the highest price the bidder may have paid for shares of the company in the preceding 12-month period (subsection 9.1.1) • Deadline: the bid notice must be published within a maximum of 45 days after the date a material ownership interest is achieved (subsection 9.1.1)

  24. Details on material changes (cont’d.) • Tender offer triggered by accumulation of material ownership interest (Section IX) • Tender offer (automatic) waivers (subsection 9.2): • Where the controlling shareholder retains control and an ownership interest in excess of 50% of the shares of capital stock – 9.2(i) • Where a material ownership interest is achieved through other types of tender offers, provided the price at which the shares were acquired must be equivalent to the benchmark bid price set for a tender offer triggered by accumulation of material ownership interest - 9.2(ii) • Involuntary accumulation of a material ownership interest - 9.2(iii) • Material ownership interest accumulated through subscription of any number of unsubscribed shares in a primary offering - 9.2(iv) • Where a material ownership interest is achieved in a disposition of control transaction, thus requiring the shareholder to extend tag along rights to other shareholders - 9.2(v) • Corporate restructuring transactions - 9.2(vi) • A waiver decided at a shareholders’ meeting prior to any accumulation of material ownership interest (subsection 9.2.1): • Changes in the tender offer characteristics: bid price, number of shares (partial tender offer), full waiver, etc. • Prospective acquirers of material ownership interest must abstain (in any event possible votes will not be computed)

  25. Details on material changes (cont’d.) • Delisting rules in the absence of a de facto or legally defined controlling shareholder: • Voluntary delisting for the shares to trade on another market: the delisting process will be contingent on a tender offer being conducted; the shareholders’ meeting will decide on who is to conduct the tender offer (subsection 12.3) • Voluntary delisting due to a corporate restructuring process where the surviving company is not listed to trade shares on the Novo Mercado: the delisting process will be contingent on a tender offer being conducted; the shareholders’ meeting will decide on who is to conduct the tender offer (subsection 12.5) • If the shareholders’ meeting fails to decide on who is to conduct the tender offer, the shareholders voting to approve the corporate restructuring transactions will be required to conduct the tender offer.

  26. Details on material changes (cont’d.) • Delisting rules in the absence of a de facto or legally defined controlling shareholder: • Mandatory delisting from the Novo Mercado (noncompliance with requirements) • If resulting from a decision by the shareholders’ meeting: the shareholders voting to approve the action entailing noncompliance will be required to conduct the tender offer for subsequent delisting (subsection 13.5.2.i) • If resulting from an act of fact of management: a shareholders’ meeting must convene to decide on whether to remedy the noncompliance. If the shareholders’ meeting decides for a delisting process, the rules on voluntary delisting apply (tende3r offer requirement, plus the shareholders’ meeting decides on who is to conduct the tender offer)(subsections 13.5.2.ii and 13.5.2.1)

  27. Details on material changes (cont’d.) • Transition provisions (adjustment to the revised regulation) • Adjustment period for currently listed issuers: three (3) years to adjust the provisions on the board of directors (30% independent directors; no accumulation of positions; mandatory audit committee) and the provisions on voting limitation (not under 5% of the shares) (subsection 15.5) • For currently listed issuers, acceptance of existing poison pill provisions, entrenched provisions and qualified quorum provisions (subsection 15.5) • Subsequent changes to poison pill provisions, entrenched provisions and qualified quorum provisions: acceptable only if amended for conformance with the revised listing regulation (subsection 15.5) • For currently listed issuers: the tender offer requirement is waived where a member of the group of shareholders directly or indirectly, but individually, achieves a material ownership interest (subsection 15.6)

  28. Details on material changes (cont’d.) • Rules whose enforcement regarding currently listed issuers requires their bylaws being amended: • Adjustment period expiring within six (6) months or the date on which the annual shareholders’ meeting next convenes, whichever is later. For example, this applies with regard to the adoption of : • Provisions related to delisting from the Novo Mercado in the absence of a controlling shareholder • Provisions to regulate the tender offer requirement triggered by accumulation of material ownership interest

  29. novomercado@bvmf.com.br www.bmfbovespa.com.br/empresas 55 (11) 2565-7003 / 7004 Disclaimer: This presentation is intended solely as information about the Brazilian securities market., in particular certain aspects of BM&FBOVESPA’s special listing segments. It is not and should not be construed as a recommendation to buy or sell any security. In addition, the information presented herein is not intended to provide, and should not be relied upon as a source of, legal advice.

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