MEXICO Law and Practice Contributed by: Gabriel Robles, Héctor Cárdenas, Eric Silberstein and Eduardo Aiza, Ritch Mueller
7. Takeovers 7.1 Public-to-Private
With regard to private equity sellers, they tend to be very risk averse and try to limit or, where possible, avoid, any surviving liability following closing, as pre - viously discussed (see 6.1 Types of Consideration Mechanisms ). 6.9 Warranty and Indemnity Protection Private equity sellers try to avoid any business-related representations. If it comes to making representations, then a full package is expected from the private equity sellers (irrespective of management, as the fund will ultimately be liable for any indemnification payment). When selling, private equity funds will try to negotiate a materiality threshold for a claim to be indemnifiable, a basket with a true deductible, and limit the liability to 5% or 10% of the purchase price at the most. In addi - tion, they will push for a liability survival of maximum 12 months (except for fundamental representations and extended representations). The limitations dis - cussed in this paragraph are those that are sell-side friendly. In respect of known contingencies, parties either adjust the price or agree on a specific indem - nity that is not generally tied to the limitations negoti - ated. Parties also negotiate rights to defend any such known contingency. 6.10 Other Protections in Acquisition Documentation Protections in acquisition documentation have been covered in this chapter. 6.11 Commonly Litigated Provisions The most-litigated provisions in the context of private equity negotiations are the scope of the representa - tions and indemnification security, both as buyers and sellers. Metrics for earn-outs are also heavily dis - cussed among principals. Finally, in respect of partial investments, corporate governance, exit rights and mechanisms for solving controversies are also heavily negotiated. Furthermore, depending on the nationality of the sellers and buyers (ie, for tax purposes), provisions related to tax obligations and responsibilities become highly significant, such as filing of tax returns, straddle periods, refunds and post-closing actions.
The Mexican securities market is quite inactive and highly illiquid, thus the volume of M&A transactions taking a public company private is limited. Moreo - ver, most public companies are controlled by private families, thus acquiring and delisting them is difficult. Assuming there is no tender offer, the board of direc - tors of any such targets would generally request a fairness opinion prior to bringing the transaction to the shareholders for approval. Upon agreement, the parties would execute a transaction agreement setting forth the necessary steps for the transaction and very limited representations and warranties. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers Any shareholder that reaches an ownership percent - age of 5% or more in a public company must disclose their shareholding to the Mexican Stock Exchange, while a shareholder who reaches 10% ownership must file a notice with the Mexican Stock Exchange setting forth their ownership structure and any agree - ments related to the shares they own (ie, voting or otherwise). The foregoing are the most relevant notices a private equity buyer must deliver. In addition to these, there are tender offer notices and filings which are depend - ent on the type of tender offer (ie, voluntary or man - datory). 7.3 Mandatory Offer Thresholds The Securities Market Law sets forth that upon reach - ing a shareholding of 30% or more of the outstand - ing shares of a public company, the holder thereof (directly or through related parties) must conduct a tender offer for 100% of the outstanding shares. Such mandatory tender must be priced at least at the high - est value paid by the acquiring shareholder over the last 12 months. 7.4 Consideration As stated in 7.3 Mandatory Offer Thresholds , man- datory tenders must be priced at least at the highest value paid by the acquiring shareholder over the last 12 months. The market in Mexico is split in respect
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