Latin American Capital Markets

CORPORATE GOVERNANCE AND CAPITAL MARKET DEVELOPMENT 443markets involving perceived inequitable treatment of shareholders. In Chile, the managersand controllers of the power company Enersis managed to secure fully onethirdof the total price paid for control of the company in return for their economicinterest in the company of less than I percent The shareholders of TV Azteca inMexico took up arms after the controlling shareholder used the company as a virtualbank to finance his purchase of cellular licenses (after publicly vowing that he wouldnever do such a thing). Investors in a series of Brazilian and Argentine companies wereforced to accept "low-ball" offers from controlling shareholders who decided to delistthe companies. Brazilian shareholders (most of them holders of nonvoting "preferred"shares of such companies) felt they were unfairly frozen out of transactions in whichthose holding a majority of the voting shares sold the control of the company at apremium over prevailing market prices.As the cases discussed later in this chapter demonstrate, capital market participantsof one sort or another have almost always undertaken supplementary privateinitiatives in the area of corporate governance, either simultaneously or immediatelyfollowing efforts to amend the legal framework One problem with legislatedreform is its general applicability to all companies similarly situated (for example, alllisted companies must comply with all legislation pertaining to corporate governance).Not surprisingly the recent spate of Latin American legislative initiatives failed to enjoythe unanimous support of the business community. Typically, established firms withproven track records in the market or with dominant positions in the equity indexeswere less enthusiastic about having to disclose additional information to shareholdersor allow outsiders on their boards. Controllers fought doggedly against mandatorytender offer triggers that would force them to share control premiums with minorityshareholders. During the reform debates, it became evident that many listed LatinAmerican companies (including some blue chips) no longer thought of the public securitiesmarkets as a potential future source of capital. Rather; a fair number of suchcompanies anticipated selling control to a larger national or, more often, internationalcompetitor (in transactions precisely like those in which the tender offer reformswere designed to apply) and thus were indifferent to the prices at which their securitiestraded in the markets.To the controllers of such companies, any strengtheningof the tender offer regime was anathema.Not all securities issuers or potential issuers were resistant A handful of listedfirms voluntarily amended their charters to incorporate some of the elements of thelegislative reforms in advance of their passage. Several companies in Brazil negotiatedtag-along rights for minority voting shares and even nonvoting shares before the legislatedreforms were passed in 2001. A major Mexican company was the first firmCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub