LatinFinance - July/August 2014 - 16

ETHAN KLINGSBERG, CLEARY GOTTLIEB

"JUST BECAUSE YOU CONTROL
THE COMPANY, IT DOESN'T MEAN
THERE IS NO ROOM FOR PUBLIC
EMBARRASSMENT"
partly due to control groups' lower returns on investment over the
past two years, which he says has spurred a general increase in deals
which pay insufficient attention to minorities' interests. "We have
an increasing number of companies doing aggressive transactions
as a result of a stagnant market." But, he adds, investors are fighting
back.
Cunha compares the situation today to the late 1990s: back then,
the Novo Mercado was set up following action by minority investors
fed up with having their rights trampled over. But after the mid2000s, the Novo Mercado became less effective in driving further
improvements in governance, as it did not build on the initial benefit
of the shift to common shares with new requirements.
This was why AMEC itself was created in 2007 as a forum for
independent asset managers to band together and raise issues with
the regulators and the public, says Cunha. "The same issues that
made investors group together in the 1990s made it clear that the
unity of investors needed to continue," he says.
Figueiredo at Aberdeen says AMEC, of which his firm is a member,
and other organizations like it, such as the IBGC (the Brazilian
Institute of Corporate Governance), have made it easier for local and
international investors to communicate and vote as a block. Guerra

at ISS agrees AMEC has helped international shareholders, which
previously had little success trying to bring change on their own.
On board
Latin American activists are more likely to lobby politicians and
regulators than their peers in the US, who are more apt to take a case
to court, says Ethan Klingsberg at New York law firm Cleary Gottlieb
Steen & Hamilton. Cartica filed a court case in New York against
Saieh and CorpBanca in April, whereas in Chile, its protests by midJune were still aimed at pressuring the capital markets regulator.
By and large, however, regulators in Latin America have in
recent years implemented rules favorable to minority investors
and therefore to activists. According to Pedro Pablo Gutiérrez, a
lawyer and director of Chilean fund manager Moneda, as a result of
new rules, courts in Chile have looked more favorably on minority
investors' complaints, including on related-party transactions.
"There's a feeling that the courts are more sensitive to these
matters now," he says. "My guess is that more and more actions will
be brought by minorities asking for damages and compensation."
Meanwhile, in Brazil, the CVM in 2010 introduced more stringent
requirements for disclosure prior to shareholder meetings.
For minorities, this has made it easier to get representation on
companies' boards of directors and audit committees, a major
goal to date for activist investors in Brazil, says Guerra at ISS.
Geração L Par FIA equity fund is one example of an investor that
now has representation in 12 companies in Brazil including nine
directorships.
Marcelo Gasparino, Geração L Par FIA's corporate governance
head, serves on the boards of some of these firms, including the
state-controlled electricity company, Eletrobras. Having minority
representation has helped make the company and its financials
more transparent and accountable, he says, even though the state

Grupo México and Pacific Airport Group

Grounded

A long-simmering dispute between Pacific Airport Group (GAP)
and Grupo México may soon reach boiling point.
Mexico's Supreme Court is set to rule over the summer
on whether GAP's bylaws can be changed to allow a single
shareholder - beyond the strategic investor - to own more than
10% of the company's B shares. The company is held 15% by
strategic investor Aeropuertos Mexicanos del Pacifico. The rest is
in free-float.
Grupo México said that the ownership limit contravenes local
securities laws and has led appeals through the country's courts,
which are close to reaching their conclusion.
The holding company withdrew a take-over bid in 2012 after
legal wrangling over GAP's bylaws, which were established during
the airport operator's privatization and IPO. Those statutes
mandate that any investor who accumulates more than 10% of the
company must sell down the excess - and has their voting powers
limited to that amount in the interim.

16 L ATINFINA NCE.COM - July/August 2014

GAP's chief financial officer, Fernando Bosque, told
LatinFinance in May that the bylaws could be changed, if
shareholders voted in favor. Until that happens, he said,
the company has to defend the rules: "This limitation is for
everybody, not only for a particular investor. It's for everybody. So
the company has to defend the regulations for everybody."
But Grupo México, which owned 27.5% of GAP in May, has
waged a noisy battle for what it sees as its rights. In a letter sent
to other shareholders in April, the Grupo México criticized the
GAP voting form, saying it had bundled financial matters with
corporate governance issues, a practice it described as "coercive
and misleading".
"Every decision taken by the general assembly proposed by
the board of directors, I think will be disputed by Grupo México,"
Bosque said.
The Supreme Court, which has deemed the issue "a matter of
national interest and significance", may have the last word. LF

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