Mergers and Acquisitions

Argentina

Richards, Cardinal, Tützer, Zabala, Zaefferer

1. Acquisition of Controlling Stakes by Private Companies in Private or Public Companies

1.1 Primary Differences

In Argentina, the acquisition of controlling stakes in public companies is subject to stricter regulatory oversight compared to private companies. Public company acquisitions must comply with the rules of the Comisión Nacional de Valores (CNV) – Argentine Securities Commission-, including mandatory tender offers and disclosure obligations. Private deals, on the other hand, are governed primarily by the Argentine Civil and Commercial Code and the General Companies Law (Law No. 19,550) and are generally more flexible, with disclosure and procedural requirements as may be agreed by the parties.

1.2. Primary Documentation

Public company acquisitions typically require documentation such as a public tender offer prospectus, CNV filings, and shareholder communications. In private deals, the primary documents include the
share purchase agreement, shareholders’ agreement, and due diligence reports. Regulatory filings after closing may be necessary depending on the industry (i.e. regulated industries or services) and size of the transaction (i.e. antitrust approvals).

1.3. Material Facts

In public deals, material facts must be disclosed to the market immediately, as per CNV regulations, to ensure transparency and protect minority shareholders. In private transactions, disclosure is limited to the parties involved, although certain facts may need to be disclosed to regulatory authorities depending on the nature of the deal.

1.4. Tender Offers

In Argentina, following the acquisition of control in a public company, the purchaser is required to launch a mandatory tender offer (oferta pública de adquisición obligatoria) for the remaining shares held by the minority shareholders. This is regulated by the Capital Markets Law (Law No. 26,831) and enforced by the CNV. The offer must be made under fair and equitable conditions, must respect the principles of transparency, protection of the investing public and publicity, and the price must reflect the highest between the price paid by the acquirer in the previous 12 months and the average price of the shares subject to the offer during the six-month period immediately prior to the date of announcement of the transaction.

2. Structuring the Deal

2.1 Common Structures

The most common M&A structures in Argentina include:

Share or interest acquisitions, which are straightforward and commonly used for both private and public companies.
Asset deals often used when the buyer wants to avoid assuming liabilities. However, these may trigger tax issues and contingencies for sellers.
Mergers or spin offs, which are less frequent due to their complexity and regulatory requirements.

2.2 Price Structuring

Common price mechanisms include:

Locked-box structures, where the purchase price is fixed based on a historical balance sheet.
True-up mechanisms, used to adjust the price post-closing based on actual financials.
Earn-out provisions, especially in deals involving startups or performance-based valuations.
Combination of the indicated above

2.3 Conditions Precedent

2.3.1 Regulatory Requirements

Deals may require prior or post approval from:

Sector-specific regulators, such as the Central Bank or the Superintendence of Insurance or the Telecommunication Secretariat, depending on the industry.
The Antitrust National Commission (CNDC for its acronym in Spanish – Comisión Nacional de Defensa de la Competencia-), for antitrust clearance. Pursuant to applicable regulations, approval before CNDC has to be requested within 7 days as of Closing

2.3.2 Other Common Provisions

Typical provisions include:

MAC (Material Adverse Change) clauses, allowing termination if significant negative events occur.
Break-up fees, especially in competitive bidding scenarios or when exclusivity is granted.
Escrow agreements with respect to a portion of the purchase price

2.4 Representations and Warranties

2.4.1 Knowledge and Materiality Qualifiers

In Argentina, representations and warranties (R&W) include knowledge qualifiers, typically defined as the actual knowledge of specific individuals (e.g., key executives or directors). There is no statutory definition of “knowledge” or “materiality” under Argentine law, so these terms are usually negotiated and defined contractually. “Materiality” is often linked to a financial threshold or qualitative impact on the business.

2.4.2 Bring-Down Provisions

Bring-down provisions are common in Argentine M&A practice. These require that the representations and warranties remain true and correct at closing, not just at signing. In some cases, a double bring-down is used—one at signing and another at closing—especially in deals with a long period between signing and closing.

2.4.3 Sandbagging Provisions

Sandbagging provisions – where a buyer can claim for breach of R&W even if they knew of the breach before closing – may be enforceable under Argentine law, provided they are expressly included in the agreement. However, if the agreement is silent, courts may interpret the buyer’s prior knowledge as a waiver of the right to indemnification, depending on the circumstances.

2.5 Guarantees

In Argentine M&A transactions, it is common to include guarantees to secure the seller’s obligations, particularly regarding indemnification. These may take the form of:

Escrow accounts
Bank guarantees
Parent company guarantees
Holdbacks from the purchase price

The choice depends on the parties’ bargaining power and the perceived risk of non-compliance.

2.6 Indemnification Regime

2.6.1 Common Practices

In Argentina, indemnification clauses in M&A agreements typically cover:

Breach of representations and warranties (R&W)
Breach of covenants
Specific indemnities for known risks identified during due diligence (normally related to labor, tax and regulatory contingencies)

The “my watch–your watch” approach is often used, meaning the seller is responsible for liabilities arising before closing, and the buyer assumes those arising afterward.

2.6.2 Common Limitations

Typical limitations on indemnification include:

Cap: A maximum liability amount, often a percentage of the purchase price.
De minimis: A threshold below which claims cannot be made.
Deductible: A minimum aggregate amount that must be reached before indemnification applies.
Basket: Can be either tipping (once the threshold is reached, the full amount is indemnifiable) or non-tipping (only the excess is indemnifiable).

These limitations are generally enforceable under Argentine law, provided they are clearly stated in the agreement.

2.6.3 Common Liabilities

Common liabilities addressed in Argentine M&A deals include:

Tax liabilities
Labor and social security claims
Environmental liabilities
Litigation risks

The statute of limitations for indemnification claims varies:

General contractual claims: 5 years under the Civil and Commercial Code
Tax and social security claims: Typically 5 years, but may vary depending on the tax and jurisdiction
Labor claims: Up to 2 years for most employment-related matters

2.7 Choice of Law and Jurisdiction

2.7.1 Applicability of Foreign Law

Under Argentine law, parties to an M&A agreement may choose a foreign law to govern the contract, provided there is a reasonable connection to that jurisdiction and the choice is not contrary to Argentine public policy. This is recognized under the Argentine Civil and Commercial Code.
However, enforcement of foreign judgments in Argentina may require exequatur proceedings, and the foreign law must be proven in court if litigation arises locally.

2.7.2 Courts Vs. Arbitration

Both courts and arbitration are valid dispute resolution mechanisms in Argentina. Key considerations include:

Courts:
Public and generally slower.
Decisions are subject to appeal and published.
May be preferable for enforcement within Argentina.
Arbitration:
Private and often faster.
Awards are final and binding.
International arbitration (e.g., under ICC or UNCITRAL rules) is common in cross border deals.
Argentina is a party to the New York Convention, facilitating enforcement of foreign arbitral awards.

In practice, arbitration is often preferred in sophisticated or international M&A transactions due to its confidentiality and efficiency.

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