SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
ALVARO CLARKE
Chairman
SECURITIES AND INSURANCE REGULATOR
“The Chilean Tender Offer Law:
Major Corporate Events- Public Tender Offers Changes in Corporate Control
Buenos Aires Argentina
March 29, 2001
MAJOR CORPORATE EVENTS:
THE GOLDEN PRINCIPLE

All shareholders must receive the same
price in equal terms when the company
changes ownership.

A fair division of profits must reach
every shareholder.
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
THE CONTROL VALUE
Efficiency: if an acquirer realizes that
under his control the company can have a
higher value, he will be willing to takeover.
 Appropriation of inflows or assets: if an
acquirer realizes that under his control he
can extract value of the company, through
deviation of business opportunities or
selling at different market prices, he would
be willing to takeover.

SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
CHANGES IN CORPORATE
CONTROL
A
transfer will be done when the
acquirer’s control value is higher than
the current control person value.
 Two reasons could explain the higher
value:
 the acquirer is more efficient
 the acquirer can extract a higher value
from minority shareholders
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
RULES OF CHANGES IN
CORPORATE CONTROL
 There
are two rules of transfer in
corporate control:
 The market rule that allows selling a
controlling interest, determining the
price in a private deal.
 The equal condition rule requires a
tender offer each time a controlling
interest is sold.
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
RULES FEATURES

The market rule
 The
acquirer and the control person
negotiate without taking into account
minority shareholders. A transfer in the
control will occur if it is privately
convenient, even if minority
shareholders are hurt.
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
WHEN A CHANGE IN
CORPORATE CONTROL IS
DONE?
ACQUIRER
E
+
V
CONTROL PERSON
E
+
V
E= Efficient
V= Extraction of Value
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
THE MARKET RULE :
THREE CASES



If both, acquirer and control person, are equally
skillful in extracting value, the transaction will be
made only if the acquirer is more efficient. In this
case minority shareholders will be better off.
If the control person is more skillful than the acquirer
in extracting value, the transaction will be made only
if the acquirer is highly efficient. In this case minority
shareholders will receive a double benefit.
If the acquirer is more skillful than the control person
in extracting value, the transaction will be made and
the minority shareholder will be hurt.
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
MARKET RULE TRANSACTION
1
2
3
4
EFFICIENCY
EXTRACTION OF VALUE
TRANSACTION
SHAREHOLDER
RESULT
>
>
<
>
=
>
>
<
YES
+
YES
?
YES
---
?
+
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
EQUAL CONDITIONS RULE

Under the equal conditions rule and if
the control person is against changing
the corporate control, the acquirer will
only take over if he is significant more
efficient than the control person.
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
SUMMARY
The market rule permits inefficient
transactions to be done.
 The equal condition rule hinders inefficient
transactions. However some efficient
transactions are not done as well.
 Even though the equal condition rule
hinders inefficient transaction, per se it
does not prevent the extraction of value
from minority shareholders.
 Corporate Governance is a key issue to
complement these Rules.
SVS

SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
THE CHILEAN TENDER OFFER
LAW
 The
following slides will
present the above
theoretical background
applied to the Chilean
legislation on Tender
Offers
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
CHILEAN TENDER OFFERS LAW
KEY POINTS
TRANSPARENCY
AND
DISCLOSURE
MANDATORY
TENDER OFFER
CHAIN PRINCIPAL
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
TENDER OFFERS
KEY POINTS
MANDATORY
TENDER OFFER
 THE
CONTROLLING PREMIUM
MUST BE DISTRIBUITED AMONG
SHAREHOLDERS
 ANY
CHANGE OF CONTROLLING
INTEREST MUST BE EXECUTED
THROUGH A TENDER OFFER
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
TENDER OFFERS
KEY POINTS


EXCEPTIONS:
EXCEPTIONS
When the following conditions exist
simultaneously:
 Transaction must be at market price ( average
price of last 60 days must be below 10%)
 Payment is in cash
 Stock has minimum liquidity

Primary distribution of the corporation

Mergers
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
TENDER OFFERS
KEY POINTS
CHAIN PRINCIPAL

WHEN TAKING CONTROL OF A PARENT
COMPANY, BUT ITS SUBSIDIARY REPRESENT
75% OF THE CONSOLIDATE ASSETS, FIRST
A TENDER OFFER MUST BE EXECUTED FOR
THAT SUBSIDIARY
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
TENDER OFFERS
KEY POINTS




TRANSPARENCY
AND
DISCLOSURE
TRANSPARENCY AND DISCLOSURE
Advance public notice of 10 business days shall
be required prior to any tender offer
Any "insider" information shall be made publicly
available
Shareholders with more than a 10% interest in
the company must disclose additional stock
purchases and must declare if they are an active
or passive investor
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
CONCLUSION

The Chilean Tender Offer Law
 Combines the market rule and the equal
conditions rule.
 The market rule operates when the price paid is
at market level.
 Protection of minority rights is the key point to
solve the takeover problem when a major
corporate event happens. Countries with good
corporate governance standards have lower
extraction of value when corporate control
changes.
SVS
CHILEAN SECURITIES AND INSURANCE
COMMISION
SVS
SUPERINTENDENCIA DE VALORES Y SEGUROS
CHILE
ALVARO CLARKE
Chairman
SECURITIES AND INSURANCE REGULATOR
“The Chilean Tender Offer Law:
Major Corporate Events- Public Tender Offers Changes in Corporate Control
Buenos Aires Argentina
March 29, 2001