CD: Reflecting on the last 12-18 months or so, what do you consider be the key developments to have emerged in the shareholder disputes space in Latin America? To what extent are disputes of this nature on the rise?

Skruzny: With less than a handful of activist campaigns documented via filings in Latin America during 2018, the vast majority of activist interactions with issuers take place out of the public eye. The most prominent recent public themes include requesting the ability to vote for individual directors via the cumulative voting mechanism, board dismissals and board representation. Beyond those themes, we have seen increased communications with management around capital allocation, including demands for greater clarity on M&A strategy, deleveraging, requests to increase share buy-back programmes or a special dividend, and on the corporate governance front, concerns relating to captive boards and related-party transactions. To the extent that the time horizon of a controlling family and that of minority investor funds remain far apart, and share prices continue to be under pressure in the region, we believe that capital allocation will be a key point of contention, particularly for those companies that have raised funds in the markets over the last few years.

CD: Are any common factors driving shareholder disputes in the region?

Skruzny: Undoubtedly, the most common factor is the prevalence of family-controlled listed companies in Latin America. In Brazil, the largest capital market in the region, with more than 450 listed companies on its stock exchange, only a small fraction are non-controlled companies. This number is slowly increasing as more private equity (PE) portfolio companies go public and the venture space matures. But to date, the strategic exit for PE firms has dominated, particularly as public valuations remain suppressed given highly volatile environments. Dual-class share structures, poison pills that kick in at very low holdings and a low prevalence of management compensation packages with short- and long-term incentives aligned with all shareholders are all common factors that contribute to differing opinions among majority and minority shareholders.

Apr-Jun 2019 issue

InspIR Group LLC