Argentina Treasury Shares Guide IBA Corporate and M&A Law Committee 2014

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1 Argentina Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Juan Javier Negri Negri, Busso & Fariña Abogados, Buenos Aires, Argentina.

2 Contents Page INTRODUCTION REGULATORY FRAMEWORK ACQUISITION OF TREASURY SHARES UTILIZATION OF TREASURY SHARES SALE OF TREASURY SHARES TREASURY SHARES AND TAKEOVER LAW Page 1

3 INTRODUCTION The following guide provides an overview of the Argentine legal framework for the acquisition and sale of treasury (or portfolio) shares of Argentine stock corporations. This guide provides general information on treasury shares, the legal requirements and restrictions for the acquisition and sale thereof and the implications of treasury shares under Argentine takeover law. The information in this guide cannot substitute professional legal advice. Consequently, anyone considering a share buyback program should not rely solely on this guide and should seek specialist advice. GENERAL OVERVIEW Is the buyback of shares permitted in your jurisdiction? In principle, the repurchase of its own shares by a corporation is permitted under the Argentine Companies Law No. 19,550 ( ACL ). However, it is subject to significant restrictions. A close corporation may repurchase its shares only in certain cases: (a) in order to cancel them, (b) to avoid serious danger to the company, provided they are bought with liquid and realized profits and (c) if they constitute assets of another company being acquired (Sec. 220, ACL.). Companies regulated by the Capital Markets Act (Law No. 26,831, enacted December 27, 2012) (i.e., public companies, whose shares are publicly traded and listed in an exchange) enjoy a more flexible regime. They may repurchase their own shares, if listed, but never in excess of 10% of the company s capital and provided the price is paid with liquid and realized profits. Other conditions listed in Sec. 64 et seq. of the Capital Markets Act and in the regulations enacted by the Comisión Nacional de Valores ( CNV ) apply. Repurchases must respect the pari passu treatment of all shareholders and the right to full disclosure of the investors. What are the characteristics (maximum holdings, voting rights and other rights) of treasury shares? Publicly traded companies: Treasury shares acquired by a corporation whose shares are publicly traded and listed in an exchange in no case must exceed ten percent of the stock capital or any lesser percentage established from time to time by the CNV taking into account the traded volume of those shares. Shares so acquired must be disposed of by the company within three years after their acquisition, unless an ordinary shareholders meeting approves an extension of the term. Once the term is over, unsold shares must be cancelled and the corporate capital will be deemed to have been reduced in an amount equal to their par value. There is no limit for the purchase; however the repurchase of shares is subject to significant restrictions under ACL. Treasury shares must be sold by the company within one year after their acquisition, unless a shareholders meeting approves an extension. Once the term is over, treasury shares shall become non-voting and carry no dividend or subscription rights as long as held by the company. Page 2

4 What are the main reasons to acquire treasury shares? The main reasons to acquire treasury shares are to stabilize their price in the local market and to a lesser extent (subject to labor law regulations) to create currency for employee stock options plans. There are no reported cases of portfolio share purchases acquired to fend off an unfriendly takeover. Low stock prices, excess liquidity and high stock market volatility are an attractive environment for share repurchases. REGULATORY FRAMEWORK The repurchase and subsequent sale of treasury shares is governed in general terms by Section 220, ACL. The repurchase and sale of treasury shares issued by listed companies is regulated by Section 64 et seq. of the Capital Markets Act (Law No. 26,831) and resolutions issued by the CNV (in particular, Title II, Chapter 1, Sec. 10 et seq. of the CNV s Normas.. There are few court precedents on these matters. ACQUISITION OF TREASURY SHARES How can a company acquire treasury shares? Public companies: Repurchase of shares may be carried out through purchases in the stock market or by means of a public offering. Purchases by private transactions may be questionable if violatory of the pari passu principles. Acquisitions in the secondary market may not exceed twenty five percent of the daily traded volume of shares during the previous 90 business days. Repurchase mechanisms must respect the pari passu treatment. No specific rules exist. Repurchase of shares may be made privately by way of purchase agreements with individual shareholders. Are there any restrictions in acquiring treasury shares? (e.g. purpose-wise; accountingwise?) Public companies: Pursuant to Section 64 of the Capital Markets Act and Title II, Section 1, Article 13 of the CNV s Normas public companies must meet the following requirements: a) That the shares to be acquired have been completely paid-in; b) That a resolution by the board of directors supported by reports from the audit committee and the statutory comptrollers shall have approved the purchase. The board of directors resolution mustestablish the purpose of the acquisition, the maximum amount Page 3

5 to be invested, the maximum number of shares or the maximum percentage of capital that may be acquired and the maximum price to be paid. The board of directors shall give complete and detailed information to all shareholders and investors; c) That the purchase be carried out with realized profits or with freely available reserves. The company must evidence to the CNV that it has the necessary liquidity and that the acquisition does not affect its solvency. d) That all shares so acquired, including those that may have been acquired before and still held by the company, in no case exceed 10% of its capital or any lower percentage established by the CNV taking into account the traded volume of those shares. e) That no tender offer for the shares of the company is outstanding at the time the purchase is made. Under Sec. 220, ACL close corporations may repurchase its own shares only in the following cases: a) To cancel them, and only upon the decision of a shareholders meeting approving a capital reduction; b) Exceptionally, using realized profits or freely available reserves, when such shares have been fully paid-in, in order to avoid a serious damage, which must be disclosed at the subsequent regular stockholders meeting; and c) If they are included among the assets of a company to be acquired or to be merged with. Which authorization is needed? Public companies: The repurchase of shares must be decided by a board of directors resolution after approval by the audit committee and the statutory comptrollers. The board of directors decision must determine the purpose of the acquisition, the maximum amount to be invested, the maximum number of shares or the maximum percentage of the capital that may be acquired and the maximum price to be paid for the shares. The board of directors shall give complete and detailed information to shareholders and investors. Pursuant to Section 66 of the Capital Markets Act the pari passu principle of all shareholders applies. Consequently, shareholders are deemed to have a pro-rata right to sell their shares to the company. The repurchase of shares may be decided by a board of directors resolution, except when such purchase entails a capital reduction which requires a specific shareholders meeting. What are the publicity requirements in the event of acquisition of treasury shares? Listed companies are required to inform the purchase to the CNV and the relevant Stock Exchange. Other publicity requirements may apply if the purchase is made through a public offering, by means of a purchase in the secondary market or in a private transaction. Page 4

6 Put and call options do they count as acquisition of own shares? Put Options Put options on its own shares granted by a corporation to its shareholders is deemed to be equal to an actual repurchase of shares. Therefore, put options granted by a company to one or more of its shareholders are subject to the same restrictions applicable to the repurchase of treasury shares described above. In particular, the pari passu treatment applies, i.e. a sale via the stock exchange market will meet the requirements of equal treatment. Call Options The purchase of its own shares is permissible under ACL and the Capital Merkets Act subject to the restrictions mentioned before. UTILIZATION OF TREASURY SHARES Are there any statutory obligations to resell or redeem treasury shares? Listed companies: Treasury shares shall be disposed of by the company within a maximum of three years after their acquisition, unless an ordinary shareholders meeting approves an extension. Upon expiration of the term, and in case the shares remain unsold, they must be cancelled and the capital of the corporation must be reduced in an amount equal to the par value of the unsold shares. Treasury shares shall be disposed of by the company within one year after their acquisition, unless a shareholders meeting approves an extension. Upon expiration of the term and in the case the shares remain unsold, they shall become non-voting stock and carry no dividend or subscription rights as long as held by the company. How are treasury shares redeemed? Redemption of shares requires a capital reduction and the corresponding cancellation. The treasury shares shall cease to exist once the redemption becoming effective. SALE OF TREASURY SHARES How can the company sell treasury shares? As an alternative to the redemption of the treasury shares following their repurchase, the board may also decide to re-sell the treasury shares. Page 5

7 Sale of the shares can be effected (i) anonymously (i.e. on the stock market); (ii) by way of a public offer; or (iii) by way of negotiation and conclusion of separate purchase agreements with individual shareholders, but always subject to the principle of equal treatment of shareholders. Are there any restrictions for selling treasury shares? Public companies: The principle of equal treatment of shareholders applies to the re-sale of treasury shares. Consequently, all shareholders are entitled to acquire treasury shares upon their re-sale by the company. As it is the case for the repurchase of shares, a re-sale of treasury shares on the stock market or by way of a public offering is deemed to fulfil the pari passu treatment requirement. Which authorization is needed for selling treasury shares? Generally, the sale of treasury shares is a management decision. Can treasury shares be sold other than via the stock exchange or by public tender offer? Yes, provided the board complies with the equal treatment of shareholders. What are the publicity requirements in the event of a sale of treasury shares? Like the repurchase program, the decision to sell treasury shares by listed companies must be informed to the CNV and the relevant stock exchange. Public companies are required to publish the respective shareholder s resolution in the CNV internet site. What legal restrictions are there in order to avoid market abuse? The purchase and sale of treasury shares are not per se exempt from the prohibition of insider dealing and market manipulation (market abuse). TREASURY SHARES AND TAKEOVER What are the general implications of treasury shares under the applicable takeover regime? Takeovers and public offerings are governed by the Capital Markets Act, Decree 1023/13 and CNV regulations. Pursuant to the Capital Markets Act and the CNV s Normas, as a general rule, whoever attempts to gain control or acquire a significant stake (i.e. in excess of 35%) of a public company, must make a public offering to purchase the necessary shares, except when the company opts, by a shareholders resolution, to be excluded from the mandatory tender offer regime. In practice, due to the low float of Argentine corporations, usually governed by a single controlling shareholder, the majority of the Argentine public companies has opted to be excluded from the mandatory tender offer regime. Page 6

8 This obligation shall not apply in cases where the acquisition of the significant stake does not imply acquisition of the company s control. Neither it shall apply to cases where a change of control takes place as a consequence of the company s restructure, a merger or a spin-off. Treasury Shares as defense measures? As a preventive measure treasury shares may be acquired by authorization of the board. However, under Argentine takeover law once the intention of a bidder to take over a company has become public the board neutrality rule applies and the purchase of shares by the company is strictly forbidden. * * * Page 7

Austria Treasury Shares Guide IBA Corporate and M&A Law Committee 2014

Austria Treasury Shares Guide IBA Corporate and M&A Law Committee 2014 Contact Christian Herbst Schönherr Attorneys at Law, Vienna ch.herbst@schoenherr.eu Contents Page INTRODUCTION 2 GENERAL OVERVIEW