Latin American Capital Markets

450 MIKELUBRANOa purchaser of a controlling interest offer to purchase the nonvoting shares, so ADRholders could be left out in the cold.The investors wanted tag-along rights, entitlingthem to sell their shares at the same price as the controllers and thereby secure anequal share of the control premium.After a certain amount of back and forth among the company, its underwriters,and investors, Ultrapar's chairman verbally committed to amend the company'scharter after the offering to grant all nonvoting shares tag-along rights (somethinghe could ensure, given the combined voting power of the founder's descendentsand the management team). This undertaking was apparently credible enough topermit the offering to go forward. Indeed the ADRs were successfully placed in October1999. Investors and intermediaries felt that the company's reputation for fairdealing was sufficient collateral to assure that the chairman would honor his promise.It may also have been understood that there was something of a community of interestbetween the investors and the management group, since the managers wouldhave a direct interest in a higher share price once their shares of the company werereleased from the trust arrangements. Ultrapar amended its charter at its next generalmeeting of shareholders in March 2000.Issuer-Investor Negotiation over Conflicts of InterestThe more recent case of CCR is a similar example of investors demanding protectionsthat go beyond those required by law. Indeed, it is an example of investors andthe company agreeing to the whole gamut of protections and enforcement: the benefitsof the Brazilian legal reforms; the Novo Mercado protections, including arbitration;and additional ad hoc arrangements tailored to the company's special circumstancesand investor concerns.CCR is the result of the merger of a set of Brazilian highway concession managers.Its initial shareholders were Brazilian civil engineering companies (that buildhighways) and a Portuguese construction contractor. The objective of its equity offeringin the domestic market in early 2002 was to deleverage the company and establisha base on which to finance expansions (that is, the purchase of new concessions).Thecompany's controllers intended to sell a large minority interest (up to 49percent) in the company through the IPO. From the start, they committed that CCRwould meet all the qualifications for Novo Mercado, including one share, one vote;tag-along rights; international accounting standards; independent directors; and arbitrationof shareholder disputes. In fact, CCR proved to be the first company toachieve a Novo Mercado listing. However given the controllers' potential conflict ofCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub