A controlling shareholder who expresses interest in increasing their shareholding or divesting their shares completely changes the composition of the board of directors, and consequently, the power to make strategic decisions for the company, as well as the election of executive directors.
Movements like these have occurred, for example, in publicly traded companies such as Petrorio (now Prio Energia), Ligth, the electricity distributor in Rio de Janeiro, and Aliança Saúde e Participações.
What did these companies have in common at the time of the purchase exercise with a change of control? These companies were going through challenging operational, market, and financial crises, and they became targets for experienced turnarounders entrepreneurs who saw the opportunity to buy significant stakes, restore the companies to operational feasebility, and consequently increase the value of the shares. It is a positively bold move in which minority shareholders reconsider their expectations and perception of the new controlling shareholder, taking advantage of clauses that protect them, if provided for in the Shareholders' Agreement. Let's see below:
𝟭. 𝗧𝗮𝗴 𝗔𝗹𝗼𝗻𝗴:
This is the mechanism that protects minority shareholders in the event of a potential sale by a shareholder or a group of shareholders who hold the majority of the shares and/or control of the company. The "Tag Along," in accordance with the conditions provided for in the Shareholders' Agreement and the Companies Law, guarantees the right of minority shareholders to also sell their shares, under more protected conditions, including the same terms and at the same price as the majority shareholder, or with a devaluation limited to 20% of the conditions offered to the controller.
𝟮. 𝗗𝗿𝗮𝗴 𝗔𝗹𝗼𝗻𝗴:
On the other hand, the "Drag Along" is a protection for the majority shareholder. This mechanism allows the majority shareholder to exercise the option to force minority shareholders to sell their shares alongside theirs if they have a purchase offer and decide to divest. In this movement, the potential buyer is then compelled to acquire the entirety of the company's shares.
Terus Consultoria has been advocating business theses with shareholders regarding their interests in value, achievement, price, conditions, and guarantees.
Get in touch with Terus Consultoria to explore how this can enhance your shareholding assets.
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