MEXICO Law and Practice Contributed by: Carlo Cannizzo, Marco Cannizzo, Stefano Amato, Enrique García and Paloma Iglesias, Cannizzo
their functions free of conflicts of interest and without being subject to personal, patrimonial or economic interests. 8.5 Conflicts of Interest The courts in Mexico have not produced many sig - nificant precedents with respect to conflicts of inter - est of directors, managers, shareholders or advisers; however, the legislation on the matter is extensive and quite complete. The LMV does not prohibit hostile takeovers and even recognises the right of companies to agree mecha - nisms in their by-laws that allow them to defend them- selves against this type of operation. Notwithstanding the above, it is important to men - tion that the Mexican securities market is very small in comparison with those of other jurisdictions such as the USA, which has a large number of listed com - panies and a very dynamic market. The only case in which a hostile takeover was intended to take place in Mexico was in 2015, and the target company had a mechanism to prevent a hostile takeover of the com - pany that was declared valid by the Mexican Supreme Court. In 2021, there was another attempt at a hostile takeover between publicly listed real estate compa - nies; however, after the implementation of a poison pill, the parties involved reached an agreement for the acquisition. 9.2 Directors’ Use of Defensive Measures The directors may use defensive measures against a takeover if these faculties are provided for in the by-laws of the target company, since neither the LMV nor the LGSM provide – in the catalogue of powers of attorney of the board of directors – for the use of defensive measures before a takeover. In general, this power of attorney is provided for in the shareholders’ meeting. 9. Defensive Measures 9.1 Hostile Tender Offers In the event that such a power of attorney for the directors is not provided for in the by-laws, the partici - pation of the board of directors could occur as long as
they present to the meeting the information to which they have had access, or on the basis of which they consider it appropriate to reject a transaction and therefore make use of the defensive measures avail- able to the company. 9.3 Common Defensive Measures The by-laws may include clauses setting forth meas - ures to prevent the acquisition of shares that grant control of the company to third parties or to the share - holders themselves, either directly or indirectly, pro - vided that such clauses: • are approved at an extraordinary general share - holders’ meeting at which 5% or more of the capi - tal stock represented has not voted against them; • do not exclude one or more shareholders, other than the person seeking to obtain control, from the economic benefits; • do not absolutely restrict the acquisition of control of the company; and • do not contravene the provisions of the Securities Market Law for mandatory takeover offers or nullify the exercise of the acquirer’s economic rights. The hostile takeover prevention measure provided for in the by-laws of a target company, in the first exam - ple mentioned in 9.1 Hostile Tender Offers , was a 10% shareholding limit scheme. The company that wanted to carry out the hostile takeover reached a stake of almost 25% of the target company’s capital. The Mexican Supreme Court, in ruling on the valid - ity of the defence mechanism of the target company, obliged the purchaser to reduce its equity interest to the limit established in the by-laws of 10%. The sec - ond example mentioned in 9.1 Hostile Tender Offers included the implementation of a poison pill by the target company. 9.4 Directors’ Duties Directors must generally comply with the duties of dili - gence and loyalty to the company and its sharehold - ers, which translates into acting in good faith and in the best interest of the company, specifically: • having sufficient information to make decisions; • requesting the opinion of experts who can provide information for making decisions;
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