LatinFinance - July/August 2014 - 14

America mirrors the trend in the US and Europe, where she says
more activist funds have been able to raise more cash due to higher
returns compared to peers. Indeed, activist hedge funds posted
returns of 16.6% in 2013, compared to the average hedge fund return
of 9.3%, according to data provider Hedge Fund Research.
"Activists in Latin America are learning tactics from funds in the
US," says Skruzny.
Since the 2008 financial crisis, investor stewardship codes have
also emerged, especially in Europe, says John Wilcox, chairman
of New York corporate governance advisory firm Sodali. These
codes stipulate that funds should be more actively engaged with the
companies they own: meeting management, voting at shareholder
meetings, and paying attention to issues like governance.
Meanwhile, the United Nations-affiliated Principles for
Responsible Investment initiative, set up in 2005, has gained
signatories globally, including in Latin America. Brazil's Previ, Latin
America's biggest pension fund, is represented on the PRI's advisory
board. The initiative aspires to have more funds interacting with
companies, while encouraging better governance and better social
and environmental policies. "The trends [globally] are all in support
of more activism," says Wilcox.
In Brazil, a greater number of listed companies than elsewhere in
Latin America means more opportunities for activism. The trend has
been encouraged by a shrinking proportion of listed firms held by
control groups, as companies have sought to raise equity capital to
finance growth. This has meant that portfolio investors, when they
club together, have a bigger chance of successfully vetoing decisions
at shareholder meetings.
Aside from the CorpBanca conflict, Chile has also seen its share
of a more vocal brand of activism - often in cases where minority
shareholders, including the private pension funds, have resisted
a deal they see as unfair. Skruzny and others note small steps in
Colombia, Mexico, and Peru - though examples of activism in these
countries have tended take the form of subtle, behind-the-scenes
negotiations.
In Brazil, funds have generally been most active in targeting midand small-cap firms, says Skruzny, largely because it is easier to sway
the vote in shareholder meetings in smaller companies. But over
the past two years, activism has also touched some of the biggest
companies in the country.
A dismal run for Brazil's stock market over the past three years
also partly explains why domestic and international investors have
sought a bigger role in how companies in which they are investing
are run, says Guerra at ISS. "The deterioration of shareholder value
has been so significant, shareholders need to look out for their
investments."
Mauro Cunha, president of the Brazilian shareholders association
AMEC, says a rise in confrontations with minority shareholders is

CRISTIANO GUERRA, ISS

"THE DETERIORATION OF SHAREHOLDER VALUE HAS BEEN SO
SIGNIFICANT, SHAREHOLDERS
NEED TO LOOK OUT FOR THEIR
INVESTMENTS"
14 L ATINFINA NCE.COM - July/August 2014

Oi-Portugal Telecom merger

Calling out

Brazilian telecoms firm Oi and Portugal Telecom, which
had been in a strategic alliance since 2010, agreed to merge in
October 2013. PT's shareholders would end up with 38% of the
new company and Oi's shareholders, with 62%.
The transaction was contingent on a large capital increase.
PT subscribed to the deal with assets, while shareholders of Oi's
controller Telemar also agreed to put in capital. The rest - at
least 5 billion reais ($2.2 billion) - was to come from the market.
Some minority investors felt that the controlling
shareholders ultimately came out winning, at their expense.
The valuation of the 5.7 billion reais in assets put in by Portugal
Telecom was a major sticking point.
"We assumed the correct value was 2 billion reais to 3 billon
reais," says Raphael Martins, a partner at law firm Faoro &
Fucci, representing minority investor Tempo Capital.
Oi's shareholder meeting on March 27 approved the valuation.
Bratel Brasil abstained, but Tempo believes all controlling
shareholders should have been absent from the vote.

RAPHAEL MARTINS, FAORO & FUCCI

"WE ASSUMED THE CORRECT
VALUE WAS 2 BILLION REAIS TO
3 BILLON REAIS"
It brought a complaint to Brazil's securities regulator on this
point, which was ultimately not upheld. One of the directors
of the regulator's collegiate ruled that as the capital increase
would dilute all shareholders in the company, there was not a
special benefit to controlling shareholders of Oi, beyond Bratel.
Two of the other members agreed.
Brazilian capital market investors association AMEC weighed
in on the debate, writing to the CVM in December to say that the
design of the transaction resulted in the "high and unjustified
dilution of Oi's minority shareholders". AMEC called for the
CVM to take that point and others into consideration when it
analyzed the case.
AMEC wrote again in May, saying it "entirely disagrees" with
the CVM's ruling, which it saw as a "serious backsliding in the
protection of minority shareholders".
Domenica Noronha at Tempo says investors' actions were
less a case of aggressive shareholder activism as it might be
known in the US, than an example of a minority owner sticking
up for its rights as a last resort.
"Minority investors tend to vote with their boots - they sell
their shares," she says. "In this case, Tempo decided to take a
stand - we decided that we needed to make a complaint." LF

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