Mergers and Acquisitions in Chile: Approaching the Controlling Shareholder
February, 2014 - JAIME CAREY AND JORGE UGARTE
Investors analysing the possibility to acquire a Chilean corporation should carefully consider the specific structure of corporate control governing most of the legal entities in Chile, since it strongly determines the way mergers and acquisitions are carried out in this country.
The Chilean structure of corporate control
When we review what corporate control means under Chilean law, it becomes apparent that the controlling shareholder of the target corporation is the key player for any merger or acquisition: he or she is able to decide whether or not such a transaction will take place and to determine the way it will be structured.
An obvious consequence of this premise is that any person pursuing the acquisition of a corporation in Chile should assume that, to be successful, it will be necessary to start any negotiation by approaching the controlling shareholder.
Unlike in the US or the UK, where the ownership of corporations is widely dispersed among a number of shareholders, the ownership of Chilean corporations is highly concentrated in the hands of the controlling shareholder or group of shareholders, except for some rather uncommon cases.
To be clear, there is nothing like the separation of ownership and control here in Chile, and the powers of the board of directors and any other stakeholders are ultimately subordinated to those of the controlling shareholder.
According to Law 18,045 (the Securities Market Act), a person or entity is in control of a corporation when, directly or through another person or entity, it has an interest in its ownership and additionally, either is able to assure the majority of votes at shareholders’ meetings and to elect the majority of the directors, or has decisive influence in the management of the corporation.
In Chile, the controlling shareholder typically enjoys full powers to elect and revoke the majority of the board members, appoint the external auditors, approve most of the by-law amendments and, more generally, determine the strategic policies of the company from a commercial and financial standpoint, including the approval of capital increases or decreases, credit agreements, bonds issuances or guarantees to be granted over substantial assets of the company, among others.
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