|Antonio Felix de Araujo Cintra||Paulo Roberto Martins de Toledo Leme|
During the registration procedures of the initial public offering (IPO) of the Brazilian airline Azul, the company had its request to become public denied by the CVM's technical department. The decision was motivated by a specific section of Azul's by-laws that entitled each preferred share to a dividend equivalent to 75 times the dividends payable to the common shares. For the CVM's technical team responsible for reviewing Azul's application, the provision in Azul's by-laws did not comply with Brazilian corporate law because it violated the general principle that economic rights should be related to shareholders' political rights.
The CVM board reversed the decision and held that the provision in Azul's by-laws does conform with Brazilian laws.
According to the CVM board, the so-called super preferred shares may be attractive to companies financed by private equity investments, as it allows the alignment of the different interests of financial investors and the controlling shareholders.
These capital structures may combine the right to receive higher dividends with limited voting rights for preferential shareholders including, for instance, the right to elect board members. It is expected that the controlling shareholders of companies that operate in capital-intensive sectors will be able to attract new investors without having to give up control of their companies.
Although similar by-law provisions have been adopted by many Brazilian private companies, the CVM decision is significant to investors because now it is clear that an entrepreneur may attract investors by creating such different capital structures and move on later to an IPO.
We believe that the CVM board decision will contribute to facilitating the structuring of attractive investment alternatives for private equity and other investors in the Brazilian market.
Antonio Felix de Araujo Cintra and Paulo Roberto Martins de Toledo Leme
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