SVS - Chile

TENDER OFFER AND CORPORATE GOVERNANCE LAW:

CHILEAN NEW SET OF RULES TO INTEGRATE THE GLOBAL MARKETPLACE

ALVARO CLARKE DE LA CERDA

SUPERINTENDENTE DE VALORES Y SEGUROS DE CHILE

APRIL 2000

TENDER OFFER AND CORPORATE GOVERNANCE LAW

THE KEY QUESTION:

How the Chilean securities market will integrate the global financial capital markets in the years to come?

SVS - Chile

Tender offer and corporate governance

MAINLY THROUGH TWO ACTIONS:

1) DEREGULATION:

Capital controlsTaxes

2) CHANGES IN OUR SECURITIES AND COMPANY LAW TO INTERNATIONAL STANDARDS:

Tender offers and corporate governance law

SVS - Chile

Tender offer and corporate governance

NEW REGULATION:

THE KEY PROBLEM

How to align the incentives of controllers (managers) and the other shareholders, sharing the company’s creation of value, in a fair and equal basis?

or

which is the same as to How to lower the incentives of the “insiders” to extract value from the outsiders due to their privilege position.

SVS - Chile

Tender offer and corporate governance

THE THREE CONFLICT AREAS

1) Major corporate events: takeovers

2) Transfer pricing

3) Insider trading

SVS - Chile

Tender offer and corporate governance

NEW REGULATIONS:

THE KEY SOLUTIONS

1) Tender offers : Mandatory bids

2) Corporate governance : Directors duties

3) Insider trading : Information disclosure

SVS - Chile

Tender offer and corporate governance

I. TAKEOVERS

1) Control premium

2) Tender offer rule

3) Information disclosure

SVS - Chile

Tender offer and corporate governance

II. TRANSACTION AMONG AFFILIATES

1. Approval without vote of directors with conflict of interest

2. Indepent appraisal submitted to the market

3. Information disclosure for at least 20 working days

4. Shareholders right to call for a shareholder’s meeting approval

SVS - Chile

Tender offer and corporate governance

III. INSIDE INFORMATION

Mayor corporate events:

1. Take overs:

Information disclosure

Mayor stakeholders

2. Transaction with affiliates:

Market transparency

3. Increased sanctions

SVS - Chile

Tender offer and corporate governance

CORPORATE GOVERNANCE

Directors Committee

Treatment of directors with conflict of interest Increase self-regulatory within the company Independent directors Annual meetings supervision

SVS - Chile

Tender offer and corporate governance

ADDITIONAL PROTECTION FOR NON CONTROLLING SHAREHOLDERS

1. More resources to regulatory body (SVS)

2. Strengthen rights of withdrawal

* Ownership concentration above 66%

3. Increase voting quorum approval

* Mayor corporate events 3/4 shares

SVS - Chile

Tender offer and corporate governance

ADDITIONAL PROTECTION FOR NON CONTROLLING SHAREHOLDERS

4. Limit share issues with extra voting rights

5. ADR’s has same voting rights as shares

6. Increase sanctions for inside information

SVS - Chile

Tender offer and corporate governance

CONCLUSIONS

1. Harmonisation is crucial to play a role in the global financial market.

2. Today’s regulation asymmetries between banking and capital markets are lowered.

3. Market consensus about the need of this new framework takes time.

SVS - Chile

Tender offer and corporate governance