Biotech Values

[DewDiligence]

[Somewhat on-topic]
Corporate governance is improving
worldwide and that includes the
southern hemisphere. Rules that once
permitted majority shareholders to
steamroll the minority are fast
disappearing and giving way to capital
structures with a single class of stock.

http://online.wsj.com/article/SB115611739182240612.html

>>
Brazil's Regulator Strengthens Minority Investors' Protection

Ruling Blocks Telemar Plan
To Eliminate Share Classes

By GERALDO SAMOR
August 21, 2006

SÃO PAULO -- Brazil's stock-market regulator issued a ruling that significantly enhances minority shareholders' protection.

A response to longtime complaints that the Brazilian market is marked by abuse on the part of controlling shareholders, the regulator's decision, issued late Friday, is designed to make it safer to invest in nonvoting shares of Brazilian companies. The ruling prevents controlling shareholders, who own voting stock, to vote their shares on matters that could benefit themselves at the expense of other shareholders.

The decision all but kills a plan proposed in April by controlling shareholders in Tele Norte Leste Participações SA to eliminate different classes of stock in the company [until such time as the reorganization can be done according to the new. fairer rules].

The telecommunications group, known as Telemar, is widely held among international and Latin American stock funds run by companies such as Brandes Investment Partners LP, Emerging Markets Management LLC and Fidelity Investments. In a filing with the U.S. Securities and Exchange Commission, Brandes, a San Diego money manager that owns 8.75% of Telemar's American depositary shares, had complained the plan would heavily dilute its interest in Telemar and said it had asked Brazilian authorities to look into the matter.

As part of the plan, investors who hold nonvoting shares in the company's several units would tender their shares in exchange for voting stock in a new company. While the plan would lead to a simpler corporate structure, the exchange terms would double controlling shareholders' stake in the company at the expense of minority investors, whose interest in the company would shrink.

"If the deal is not good for everybody involved, it won't get done," said Marcos Duarte, a partner at Polo Capital Ltda., a Rio de Janeiro-based hedge fund. He believes Telemar will have to modify the exchange terms to win shareholders' approval for the plan. Telemar declined to comment.

The power of controlling shareholders is an issue that arises frequently because most Brazilian companies have two classes of stock. An increasing number of companies are switching to a single-class share structure. Food producer Perdigao SA and aircraft maker Empresa Brasileira de Aeronáutica SA, or Embraer, have already done so.

"We want more and more companies to simplify their share structures, but we want it to be done in a legal and fair way," Marcelo Trindade, head of the regulatory commission, said.

Etc.
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