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M&A

1.The Movement of M&A
1.1 Examples of M&A of Japanese Companies

-In 2012, the Japanese company Mitsui & Co. bought the Brazilian Veloce Logistica SA by 4,700 million yen (US $ 58.5 million) to expand its parts distribution business vehicles in the South American country. Mitsui bought the third operator in the sector in the Brazilian market, which employs 500 people and generates sales of about 9 billion yen (US $ 112,379) to private equity firms and other investors.

-In 2013, Mitsubishi acquired 60% of the Grobo Ceagro do Brasil for US $ 498 million Grobo (income fiscal year in June 2012: US $ 1,100 million) sold, by the investment fund Vincit Partners, the equity stake jointly (50.7%) and equally, were in Los Grobo Ceagro do Brasil SA (tax revenues in June 2012: US $ 378.8 million; Br $ 763.7 million) to the Japanese company Mitsubishi Corporation for US $ 498 million, allowing the Japanese group, thus passing the 80% controlling stake in Brazilian agriculture.

2.The points needed to be considered during the process of M&A
2.1 Differences of Legal System, Tax System and Commercial Practice
The legal rules governing business activities in Brazil are basically laid down in federal legislation. The Constitution allows the Federal Government, the States and the Federal District to concurrently legislate on certain matters related to business activities, such as tax, financial and economic issues, and liability for environmental and consumer damages, among others. In this case, the Federal Governments power is limited to enacting general rules on such issues, whereas the States and the Federal District have authority to legislate on a supplementary basis, in line with the general rules laid down in the federal legislation .

2.2 Legal System for Foreign Capital

-Law 4,131 (1962) is the basic legislation concerning foreign capital. It applies to any capital that entered the country in the form of foreign currency, goods and services. Portfolio investments and investments in local currency are subject to specific regulation. It is possible, as well, to invest using local currency, under Law 9,069 (1995).
-Law 11,371 (2006) obliges registry, with the BCB, of foreign capital invested in the country in local currency, which is not subject to other form of registry. Law 4,131 defines foreign capital as any goods, machinery and equipment that enter Brazil intended for the production of goods and services, as well as any inflow of funds to be used in economic activities, belonging, in both cases, to non-residents. Foreign capital is assured identical juridical treatment to national capital, unless it is specified differently in law.

2.3 Methods of Project Valuation and Company Valuation
2.3.1 Net Asset Method
According to this method the value of the company is the difference between the assets and liabilities payable, adjusted to their respective market values, considering the state and utility of the various balance sheet for the company. The actual net assets will not match the net asset because the balance: collecting items measured in different currencies; It does not reflect the price change that suffer certain goods; repayments do not usually correspond with the actual depreciation of assets; provisions may not conform to the true risks (there are provisions made in excess and others in default); includes assets that have no real value; possible existence of hidden liabilities; and there may be unaccounted assets.

2.3.2 Multiple Method
[The trading multiples are based on estimating the value of a company by comparing this with the value of other similar companies listed on the stock exchange. The transaction multiples have similar characteristics. It is to analyze the previous transaction price paid for similar companies to the target company in order to obtain an estimate of the price you might be willing to pay for it.]
2.3.3 DCF (Discounted Cash Flow)Method
[This method analyzes and estimated future performance of a company to determine the price of their actions in the present. Importantly, business valuation is more about applying common sense to the information which is available in mechanically using a mathematical formula. It relies more on the rationality of interpretation of the results obtained in the obtaining of a single definitive value. The analysis through the DCF takes into account the available information about a company and its environment to calculate the final price].

2.4 Increase of Poison Pill
[DEFINITION of ‘Poison Pill’: A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: A “flip-in” allows existing shareholders (except the acquirer) to buy more shares at a discount. A “flip-over” allows stockholders to buy the acquirer’s shares at a discounted price after the merger.]
[From 2004 to 2008, the Brazilian stock market experienced an unprecedented period of growth and expansion. Now the Brazilian companies are the cheapest they have been in years, presenting bargain hunters with prime buying opportunities.
In this context, the Brazilian poison pills were intended to be an additional initiative to increase the importance of the small investor in Brazilian stock market newcomers. As opposed to the poison pills adopted in the United States, the typical Brazilian poison pill provision is implemented in the company’s by-laws as a restriction for the acquisition of the company’s issued and outstanding shares. Each company decides whether or not to adopt the poison pill provisions, since there is no law or rule which requires their adoption by the publicly-held companies].

2.5 Limit of royalty in the period of technology transfer
[The payments between a Brazilian subsidiary and its foreign parent company started to be authorized as a result of Law 4.131/62 in 1991. It establishes the maximum coefficient of percentages allowed for tax deduction of the amounts paid as royalties for the exploitation of trademarks and patents, technical, scientific, administrative assistance and the like; depending on the technological area involved, those percentages may vary from 1% to 5%. Because of its legal attribution of registering agreements that involve transfer of technology, as well as franchising, the BTO started to limit the percentages of royalties when the relevant agreements involve related companies, whereby the foreign parent company holds, directly or indirectly, the control of the voting capital of its Brazilian subsidiary. ]

3.Situation of development of law on M&A
3.1 Overview of legal system on M&A
On May 29, 2012, Brazil used a new regime for Merger control. Under the prior merger control regime, three separate government entities in Brazil had overlapping responsibility for reviewing mergers and consolidations: the Secretariat of Economic Law of the Ministry of Justice (SDE), the Secretariat for Economic Monitoring of the Ministry of Finance (SEAE), and CADE.

3.2 Restriction on Foreign Investments.
Foreign investments are restricted in several sectors, such as insurance, aviation and media.

3.3 Regulations on Land and Real Estate
[There are no restrictions on foreigners buying land and commercial buildings, except at the borders of the country.
In October 2009, the Brazilian Chamber of Deputies approved legislation that further restricted foreign ownership of land along Brazil’s borders and within the Amazon. In August 2010, the government issued a revised interpretation of Brazil’s 1971 land ownership legislation (Law 5709), strengthening existing language limiting foreign ownership of agricultural lands in rural municipalities. The new regulations have the potential to disrupt purchases of farmland by foreigners.]

3.3.1 Strengthening restrictions on purchasing land and real estate
[In August 2013, a set of new rules covering the purchase of Brazilian land by foreigners was published. The area bought or leased by foreigners cannot account for more than 25% of the overall area in any municipal district. When a foreign group wants to purchase large plots of land, congressional approval is required.]

3.4 Corporate law in Brazil
3.4.1 Issuance of new shares
[Depending on what is stated in the company’s bye-laws, the general meeting of shareholders and/or, in certain circumstances, the board of directors must approve the issue of shares. Unless the company’s bye-laws establish a higher threshold, share issues must be approved by majority voting. This approval must be formalized by appropriate corporate resolutions, which must be registered in the competent Commercial Registry and published in the Official Gazette and an ordinary newspaper. The shareholders have at least 30 days to exercise pre-emptive rights to subscribe new shares.
Share issued by companies that carry out regulated activities (for example, financial institutions and insurance and public utility companies) are often subject to specific regulations.
Only Brazilian corporations can publicly issue and trade shares. In addition to private consents and approvals (see above, Private issues), the issuer must register the share issue with the Brazilian Securities and Exchange Commission (CVM). The São Paulo Stock Exchange (BM&FBOVESPA) must also approve the transaction.]

3.4.2 Merger
3.4.2.1 Process of merger
It is the union of two or more companies that become extinct form a new and unique company that succeeds in the rights and obligations and is described in Law 6,404 / 76 in the art. 228. The merger of administrative control is the responsibility of the company that has a higher or more prosperous them. This should be notified to the Council for Economic Defense (CADE).This type of partnership enables cost savings, but can lead to restrictive or monopolistic practices in the market.
Characteristics:
-The complete transfer of assets and shares, with universal succession.
-Extinction (without liquidation) of at least one of the merging companies.
-“Rumination” partner, i.e., the entry of the shareholders of the company or companies extinct in the new company.
Mergers between banks are the most common and its assets (sum of securities loans and properties) increase.

3.4.2.2 Dissenting Shareholders Demand for Purchase of Shares

3.4.2.3 Objection Procedures for Creditors
Statutory rules governing, for example, tax, labour, social security and environmental liabilities are mandatory and cannot be changed by contract. This means that creditors can seek to enforce their claims, irrespective of agreements between the seller and buyer. If the assets being sold constitute a “business unit” (estabelecimento empresarial), the purchase agreement will only become enforceable against third parties after it is registered with the Commercial Registry and published in the Official Gazette (Article 1,144, Civil Code).
The legal concept of a business unit refers to an organized range of tangible and/or intangible assets intended for the performance of a business activity (Article 1,142, Civil Code).
Even where these formal procedures are adopted, if as a result of the sale of a business unit the seller’s assets become insufficient to meet its obligations, either:

•The transaction is subject to the creditors’ consent.
•The seller must pay its debts (Article 1,145, Civil Code).

Further, sellers of business units can be declared insolvent if the creditors’ consent is not obtained (Article 94(III)(a), Law 11,101/05) (Insolvency Law). If the seller is declared insolvent, transactions that took place before the winding-up order can be rendered ineffective (Article 129, Insolvency Law).
The same rules apply to lease agreements of business units.
In bank loans, and other important business agreements, asset sales executed without the consent of the bank (or other creditors, as the case may be) often involve acceleration of the loan and an event of default.
If assets are encumbered by voluntary or involuntary liens, the transfer of such assets is subject to the secured creditor’s consent.

3.4.3 Division
3.4.3.1 Absorption-type split
The company division does not imply inexorably in the extinction of the split company, since the law itself provides for the possibility of partial split-off. In the split-off, the share capital is divided because of the part version of the company’s assets split off to another company. The portion poured to another company must always correspond to a decrease in social capital, and is described in Law 6,404 / 76 in art. 229.
Paragraph 1 of Article 229 of Law 6,404 / 76, explains on how the succession obligations of the split company are. In the case of total split, with extinction of the company, the companies that absorb portions of the equity of the demerged company will succeed this in proportion of the assets transferred, i.e. succeed society split the rights and obligations relating to that particular piece of heritage that was transferred. The partial split-off event situation is similar, should be emphasized, however, that the split company remains in existence. Thus, the succession of rights and obligations, of course, will only take place on the equity portion that was transferred to another company.
Extinguishing up with the split, the split company, it is up to the managers of the companies that absorb the heritage, promote the archiving and publication of acts related to the operation. “Being only partial version of heritage, these acts are performed by the demerged company and by which absorbed part of the heritage.”

Characteristics
When equity installment version in existing company, the demerger shall comply with the provisions on incorporation, i.e. the society to absorb portion of the equity of the demerged entity will succeed him in all rights and obligations (Corporate Law – Law 6404 of 1976, art. 229, §§ 1 and 3).

In transactions where there is creation of society, the norms regulating corporations will be observed depending on the type of society created (Corporate Law, art. 223, § 1). Honored the split with the termination of the demerged company will be up to managers of companies that have absorbed portion of its assets to promote the registration and publication of the acts of the operation. In the division with partial version of this heritage must be up to the administrators of the demerged company and to absorb part of its assets (Corporate Law – Law 6404 of 1976, article 229, § 4.).

3.4.3.2 Situation of split of new stock
[The section 60, sole paragraph, of Federal Law 11.101/05,establishes that the purchaser of an isolated business division of a company under judicial recovery (the Brazilian Chapter 11 equivalent), provided that certain requisites are met, should not inherit any liability from the Seller. Such a section has been developed to give to the company under judicial recovery, and to its creditors, a genuine opportunity to timely generate an important cash flow. In such situation, if a due diligence had to be performed by the Purchaser, it is likely that the results would cause the business not to be sold, or at least to be sold under not very attractive conditions from Seller’s standpoint. Likewise, a sale preceded by a due diligence would likely not meet the pace required by an insolvent company with urgent cash flow needs. From a practical standpoint, the assets sold in the context of a judicial recovery are commonly dropped by the Seller (the company in judicial recovery) into a new company before the sale takes place. As a consequence, the Purchaser acquires the shares of such new company, under which the desired assets are. Such section sets forth that the company remains liable even in case of any contractual change, transformation, incorporation, merger or spin off.
Additionally, paragraph 1 of the aforementioned section 4 establishes that, in case of incorporation or merger, the succeeding company becomes liable for fines and damages (and not the other penalties set forth by the Anticorruption Act), and up to the limit of the assets transferred or merged, unless fraud is found.
The purpose of section 4 is two-fold: (i) it avoids that the company adopts any maneuver to set aside its liability or cause the company not to hold sufficient assets for the payment of fines and damages; (ii) it transfers to third parties which have merged into or incorporated the problematic company the liability originally held by it. Regardless of the aforementioned understanding, this is a situation that will be extensively discussed and debated in any purchase under section 60 of the Bankruptcy Act, particularly when the company under judicial recovery has long-term relationships with governmental entities.]

3.4.3.3 Dissenting Shareholders Demand for Purchase of Shares

3.4.3.4 Objection Procedures for Creditors

3.5 Regulations of securities underwriting
3.5.1 Obligation of Tender Offer
[Distribution Programs with the CVM with the aim of facilitating the grant of registration for future offerings. To carry out a public offering, the offeror must engage an underwriter to place the securities with the public. The offeror may authorize the underwriter to distribute a supplementary lot of securities, if demand is greater than expected, at the same price as the initial lot of securities. The prospectus must set out the limits for the supplementary lot, which may not be larger than 15% of the number of securities initially offered.
In addition, the offeror may, at its own discretion, increase the offering by up to 20%, without making a new application for registration or modifying the terms of the original registration.
The CVM has the power to suspend (for up to 30 days) or cancel an offering that is being carried out contrary to the law in force or to the terms of the offering’s registration, or that is illegal, contrary to CVM regulations or fraudulent.]

3.5.2 Regulation for insider trading
[Although Brazil has made substantial progress in reducing traditional border trade barriers (tariffs, import licensing, etc.), tariff rates in many areas remain high and continue to favor locally produced products. Brazil’s barriers to trade are a cause for concern for the US Government and the European Union (EU), both of whom continue to work through regional trade accord negotiations and at the WTO level to influence tariff and non-tariff barriers. ]

3.6 Regulation of the combination of new company
3.6.1 Companies that need premerger notification.
[One of the most significant changes to Brazil’s merger review system is the introduction of a premerger notification system.
The Brazilian System for Competition Defense (SBDC), with competences attributed by Law 12.529/201, has two main attributes: preventive and repressive. The preventive role refers to the analysis and control of mergers that may lead to economic concentration or to the abusive use of a dominant market position. The repressive role has the objective to identify and punish the economic agents that had practiced infringements against the economic order (anticompetitive conducts). According to article 90 of the Brazilian Competition Act, a concentration act occurs whenever: (i) there is a merger involving two or more companies previously independent; (ii) one or more companies directly or indirect acquire – by purchase or swap of shares, membership units (quotas), securities or convertible shares, or tangible or intangible assets, by operation of contract or through any other means – the control over, or parts of, one or more companies; (iii) one or more companies absorb another company or companies; or (iv) two or more companies enter into an association, consortium or joint venture agreement.
Exception is made with regard to consortiums, associations or joint ventures formed with the specific purpose to participate in public bids. ]

3.6.2 Other premerger requirement
3.6.3 Timing for apply and process of investigation
[There is no legal term set forth for the filing of the transaction. However, CADE’s Internal Ruling provides that the transaction shall be preferably submitted after a first biding document is executed between the parties.]

3.6.4 New application form
[Filing forms: there will be two filing forms: (a) a short-form for non-complex transactions (summary procedure); and (b) a full-form for more complex deals from an antitrust perspective. There has been a considerable reduction in the volume of information and documents that was expected to be required from the notifying parties as previously indicated in the original draft regulations, in particular for summary procedure cases. The regulations set forth that the summary procedure shall apply to greenfield joint ventures, consolidation of a controlling interest, entry of a new player, transactions resulting in low market shares, amongst others. It is at the discretion of the General-Superintendent to apply the summary procedure to a given notified transaction.]

3.6.5 Punishment of delinquency
[The filing is mandatory provided that the thresholds described on items 5 and 7 are met. According to Paragraph 3, Article 88 of the Antitrust Law, if a transaction is implemented before CADE’s final decision, a fine, which can vary from R$ 60.000,00 to R$ 60.000.000,00 shall be imposed to the parties involved in the transaction.]

3.7 Accounting system
[In Brazil, the fiscal year begins on January 1 and ends on December 31 of that year.
Commercial companies must publish a balance sheet, income statement and all the information necessary to make reference to the financial health of the company annually. The documents are examined within 60 days prior to the annual general meeting of shareholders.]

3.8 Tax on M&A
3.8.1 Loss carried forward
[The Brazil’s Supreme Court (STF) on March 25 of 2012 held that a restriction created in 1995 that limits the use of net operating losses to offset up to 30 percent of corporate taxpayers’ taxable income is not in violation of Brazil’s Constitution.
Articles 42 and 56 of Law 8,981/1995 limit corporate taxpayers’ ability to use 100 percent of existing NOLs to offset taxable income in a given year and reduce the corporate income tax and 9 percent social contribution on net income (CSL).
Previously, taxpayers had been able to carry forward NOLs to reduce all taxable income in subsequent years, but unused NOLs expired within five years after being generated. No NOL carryback was allowed.
Under Law No. 8,981/1995, NOLs no longer expire, but they can only offset up to 30 percent of a taxpayer’s taxable income in a given year. In other words, for each BRL 1 of taxable income, BRL 0.70 of the corresponding tax must be paid in cash even if the taxpayer has NOLs.
The NOL use restriction became effective for taxable income generated on or after December 31, 2004. However, as soon as the restriction was put in place, taxpayers started challenging its constitutionality.]

3.8.2 Tax on Thin Capitalization
[1) Where interest is paid or credited to a related party (whether or not a shareholder) not located in a tax haven or privileged tax regime jurisdiction, the related party debt-to-equity ratio may not exceed 2:1, calculated based on the proportion of related party debt to the direct equity investment made by the related party.
2) Interest paid or credited to a company or individual located in a tax haven or a jurisdiction that has a privileged tax regime, as defined under Brazilian law, may be deducted provided the debt-to-equity ratio does not exceed 0.3:1. The final version of the thin capitalization rules clarifies one of the controversial aspects of the original version, i.e. the applicability of the debt-to-equity ratio on debt paid to a related party that does not have an equity interest in the Brazilian payer company.
The final version of the thin capitalization rules clarifies one of the controversial aspects of the original version, i.e. the applicability of the debt-to-equity ratio on debt paid to a related party that does not have an equity interest in the Brazilian payer company.]

 

3.8.3 Tax on purchase of securities (taxation according to stock acquisition)
In 2012 Brazil consider the tax on the purchase of shares, in order to control the deep appreciation of its currency.
This tax is called Tax on Financial Operations (IOF)

3.8.4 Tax on property transfer (Imposto sobre a Transmissão de Bens Imóveis)
[It must be paid in transactions involving urban and rural properties. The calculation basis for ITBI is the assessed value of the real estate, which is the market value, but not necessarily the selling price. As stated above, ITCMD is a municipal tax, so it’s up to the Brazilian municipalities to establish the rates, legislation and payment deadlines regarding this tax.
Annually, the municipality determines the value of each real state, over which it is charged the IPTU (Municipal Property Tax). As a rule, the law considers that the calculation basis of IPTU is also the basis for calculating the ITBI. However, if the price the buyer paid for the property is much higher than the amount released by the municipality for purposes of IPTU, the government can provide that the calculation basis of ITBI be the sale value.
ITBI is not levied over the transfer of property or rights that are incorporated to the patrimony of a legal entities through capital realization, or in the transfer of property or rights pursuant to an merger, incorporation, split-off or extinction of a legal entity, unless in these cases, the main business of the buyer consists in the purchase and sale of such property or rights, real estate rental or leasing. The non-levy does not apply if the purchaser has a legal entity principally engaged in the sale or lease of real property or the assignment of rights to purchase.] .

4.Base of scheme of M&A
4.1 The way that foreign investors invest the Brazilian company
4.1.1 Transfer of stocks

[In a limited liability company, partners may transfer their quotas to third parties, unless such transfer is hindered by partners representing at least 1/4 of the company’s corporate capital. There is no restriction on the transfer of quotas between the partners. However, the Articles of Association may create more strict rules relating to the transfer of quotas.
In a Joint stock Corporation, transfers are allowed and are not conditional on any approval as long as the transfer is duly registered in the share transfer book and in the share register. The bylaws or the shareholders’ agreement may provide for certain restrictions.]

4.1.2 Tender offer
[Publicly-held companies are required to make a public tender offer (Oferta Pública para Acquisição de Ações, called an “OPA”), in accordance with the terms of the Brazilian Corporations Act and CVM regulations, in the following cases:
i. public tender offer for cancellation of registration for listing of shares on regulated securities markets, which must be made by the controlling shareholder or by the company itself, with a view to acquiring all the shares issued by the company (art. 4 §4 of the Brazilian Corporations Law and CVM Ruling n. 361/02);
ii. Public tender offer to increase shareholdings, which must be made when the controlling shareholder’s interest reaches a percentage that, under CVM regulations, impedes the market liquidity of the remaining shares. The offer must be for all the shares of the affected class or type. (Art. 4 §6 of the Brazilian Corporations Law and CVM Ruling n. 361/02); and iii. public tender offer for transfer of control, which constitutes a condition for the validity of any transfer, direct or indirect, of control of a publicly held company. The offer must be made by the shareholder who acquired control and cover all shares issued by the company that have full and permanent voting rights (art. 254-A of the Brazilian Corporations Act and CVM Ruling n. 361/02). Late in 2010, CVM Ruling 361/02, which governs public tender offers, was amended by CVM Ruling 487/10. According to the CVM, the changes were motivated principally by the need to adapt the public tender offer rules to a scenario in which public tender offers to acquire control of publicly-traded companies are becoming more frequent. The amendments are also intended to update the provisions of CVM Ruling 361/02 in light of the experience acquired by the CVM in public tender offers since that ruling was issued, in 2002.
The main changes made by CVM Ruling 487/10 are the following ones:
(i) More specific rules on the offeror’s confidentiality obligations prior to making the offer, and procedures to be followed if information on the offer escapes the offeror’s control;
(ii) Detailing of the auction rules for public tender offers for control, prohibiting (a) third party intervention in the auction for acquisition of a smaller number of shares than sought by the offeror, and (b) any increase in the auction price by
the offeror when a competing offer is made; as well as a substantial increase in the quantity and quality of information to be disclosed in the case of a public tender offer for control, by the offeror, the target company, its management and its main shareholders, especially on transactions involving shares and
derivatives during the period of the public tender offer; and (iii) fine-tuning of the provisions on the evaluation reports to be obtained by the offeror in some types of public tender offers, regarding the work expected and the liability of the valuators. Generally speaking, the public tender offer is made to all holders of the same type and class of shares covered by the offer by publishing a notice at least once in the widely circulated newspaper normally used by the company to publish its communications. If at the end of the public tender offer for cancellation of registration procedure less than 5% of all the shares issued by the company remain in the market, the shareholders may, at a general meeting, authorize redemption of the shares for the price established in the public tender offer, and so withdraw them from circulation. The public tender offer must be carried out by means of an auction on the stock exchange or organized over-the-counter market on which the shares covered by the offer are admitted for trading; if they are not admitted for trading, the offer may be carried out on a stock exchange.]

4.1.3 Share exchange
4.1.4 Transfer of business
[Whenever the intention is to transfer a business, there are some structures that may be adopted and the choice will mainly depend on the specifics of each case. Therefore, the choice for one structure or another shall be made on a case by case basis.
Spin-Off. A possible structure for the transfer of a business is a spin-off, which consists in the transfer of the net assets corresponding to the business to another company. Kindly note that it is possible to have in a spin-off the transfer of isolated assets or the transfer of all assets of a business integrated as an “establishment” (“estabelecimento”).
As a result of this operation, in principle, the capital stock of the spun-off company will be adjusted (reduced) by an amount corresponding to the equity value of the portion of its net assets to be transferred to the recipient company. The total amount of the quotas to be cancelled will correspond to the amount of the capital reduction. In addition, through the partial spin-off and the transfer of the spun-off assets to the recipient company, the capital stock of the recipient company will be increased in the amount equivalent to the spun-off assets’ value received by it, in favor of the partners of the spun-off company, with the correspondent creation of new quotas, to be totally subscribed by such partners. Therefore, as a consequence of the spin-off, the partners of the spun-off company will end up holding, proportionally, the same equity participation in the recipient company. In order to avoid discontinuation of the business, the recipient company should obtain all licenses and registrations necessary to operate the business before the spin-off.
The spin-off is a bureaucratic corporate transaction as it shall involve the approval of the spin-off in a partners’ meeting of the spun-off company. A term for opposition by creditors shall also be opened and an appraisal would be required.
Drop-Down. Another alternative available to structure the transfer of a business is via drop down of the assets into another company. Under this structure, the company receiving the assets is a subsidiary of the company which will transfer the assets. As a subsidiary, the parent company would pay-in the capital stock of its subsidiary upon the transfer of the assets (and liabilities, if any) related to the business (“net assets”). Therefore, the capital stock of the subsidiary will be increased by the amount of the net assets transferred by the parent company. All employees of the business could also be transferred to this company. Kindly note that it is possible to have in a “drop-down” the transfer of isolated assets or the transfer of all assets of a business integrated as an “establishment” (“estabelecimento”). In order to avoid discontinuation of the business, the subsidiary should obtain all licenses and registrations necessary to operate the business before the drop-down.
This structure is less bureaucratic than the spin-off as it does not require special approvals (from partners or creditors). If Newco is formed as a Corporation (“Sociedade Anônima”), the contribution of the assets would require an appraisal to be prepared by a specialized firm or three experts. In the other hand, if it is formed as a limited liability company (“Limitada”), an appraisal is not be required by law, although an appraisal may be recommendable to back the amount of the contribution (in a Limitada, the partner who pays-in the subscribed quotas with assets is deemed liable for the amounts attributed to the assets).
Sale of Assets. A possible structure is the sale of assets that comprise the business. The parties involved will sign an Asset Purchase Agreement and take the necessary tax and accounting measures to comply with the law related to the transfer of the assets (issuance of invoices, payment of relevant taxes, etc) . No appraisal is required in this case. In order to avoid discontinuation of the activities of the business, the company that will operate the business should obtain all licenses and registrations required to carry out the business, before the sale of the assets related to the business. This structure may result in some tax impacts that shall be carefully considered on a case by case basis.
Sale of Establishment. Another alternative would be the sale of all the assets of the business integrated as an “establishment” (i.e., branch). Under this structure and assuming that the business is conducted exclusively in a separate branch, a company would acquire such establishment operated as a branch. In order to avoid discontinuation of the business, the recipient company should obtain all licenses and registrations necessary to operate the business before the sale of the establishment.
As per the Brazilian Civil Code, the agreement for the purchase and sale of establishment (“Contrato de Trespasse”) shall be published in the Official Gazette, as well as filed with the respective Board of Commerce, being consequently of public’s knowledge. Please note that, as per a normative ruling issued by the National Commerce Department, it is allowed to be published, in the Official Gazette, only a summary of said agreement, being dismissed the publication of the full agreement.
Timing. The timing involved to accomplish the transfer of the business in each alternative set forth herein is quite similar. This is because the process that would be more time consuming is the one in connection with obtaining all the licenses and permits in order to allow the recipient company to operate the business as a “stand-alone” entity. The preparation of the corporate documents to reflect the transfer of the business and the subsequent filing before the Board of Commerce does not take too long.]

References:
-Guide to Doing Business in Brazil, by PINHEIRO NETO ADVOGADOS for the SÃO PAULO CHAMBER OF COMMERCE of the ASSOCIAÇÃO COMERCIAL DE SÃO PAULO
-International capitals and foreign exchange market in Brazil. Banco central do Brasil, 2015.
-Métodos Clásicos de Valoración de Empresas, Valls Martinez, M.C. Universidad de Almería.
-Introducción a la valoración de empresas por el método de los múltiplos de compañías comparables. Universidad de Navarra, por Cristina Badenes y José Ma. Santos, bajo la supervisión del profesor Pablo Fernández, Mayo de 199.
-Pre-Merger Notification Guide Brazil, Demarest e Almeida Advogados, Lex Mundi Publication.
-Legal Guide for Foreign Investors in Brazil, Ministry of External Relations, Department of Trade and Investment Promotions, Investment Division, Brasilia:MRE: BrasilGlobalNet, 201
-Deloitte, Brazil Tax Alerts. 2010
-Guide to Doing Business in Brazil, Mayer Brown, Tauil & Chequer.

-http://www.wsj.com/articles/foreign-investors-buy-into-brazil-lead-m-a-activity-1447951569
-http://lexuniversal.com/en/articles/11330
-http://www.siqueiracastro.com.br/informativos/Brazilian-Legal-Report/2014/BLR-6-03.html
-http://www.investopedia.com/terms/p/poisonpill.asp#ixzz3wVr4xm8o
-https://en.santandertrade.com/
-http://www.coladaweb.com/administracao/fusao-cisao-e-incorporacao
-http://thebhttp://www.clarkemodet.com/blog/2010/01/Brazil-Restriction-in-royalties-remittance.html
-http://www.accountingtools.com/nol-carryforward
-http://www.mondaq.com/brazil
-http://export.gov/brazil/doingbusinessinbrazil/eg_br_023967.asp
-http://www.clarkemodet.com/blog/2010/01/Brazil-Restriction-in-royalties-remittance.html
-http://uk.practicallaw.com/8-538-4305#
-http://www.mondaq.com/brazil/x/183906/Antitrust+Competition/CADE+Issues+New+Merger+Control+Regulations
-http://www.azevedosette.com.br/en/noticias/brazils_supreme_court_upholds_restriction_on_use_of_net_operating_losses/1956
-http://thebrazilbusiness.com/article/imposto-sobre-a-transmissao-de-bens-imoveis