Over 2012-2013 the most perspective industries featured by extensive M&A (mergers and acquisitions) activity are financial, manufacturing, gas and oil industries. Currently the level of M&A activity is described as moderate and the trends observed over 2012 are the same. The types of M&A transactions in Venezuela are regional and multinational M&A transactions. Regional and multinational investors typically purchase the subsidiaries in Venezuela (Eiteman, Stonehill, and Moffett, 2012).
Venezuelan government also actively purchases the national companies and the current rate of acquisitions and takeovers will steadily increase in the foreseeable future. The level of international acquisitions of Venezuelan oil companies by multinational corporations (MNCs) will also increase especially among the US corporations featured by strong cash positions and long-term strategies aimed at the increase of their market share in various industries and industry sectors in Latin America (Eiteman, Stonehill, and Moffett, 2012). In particular, US oil and gas companies are actively investing in joint ventures with the Venezuelan government. In turn, the Venezuelan government is offering these investors proper levels of legal protection considering legal risks related to international arbitration disputes (Mommer, 2001).
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The country risks that have recently affected the M&A decisions of the US companies are related to the overall political environment in the country, political and legal prospects, insufficient legislation, and existing exchange control. These threats are largely defining the current and future trends in M&A activity (Latin Lawyer, 2013).
Notwithstanding the moderate level of M&A activity and M&A transactions during 2012 from foreign acquirers, expert forecasts by the end of 2013 are not definite considering various country risks and legislative restrictions (Latin Lawyer, 2013).
Venezuela is overall open to foreign acquirers as there are few companies fully owned and/or controlled by Venezuelan investors, including: radio broadcasting, open-air television, Spanish media, professional law services, as well as commercial air services. In turn, oil industry is reserved to the Venezuelan government wherein foreign investors are entitled to participate as minority stakeholders in such joint venture companies. This restriction concerns the Venezuelan state-owned companies. With regard to privately owned companies, foreign investors and domestic bidders are equally competing (Eiteman, Stonehill, and Moffett, 2012).
The plus side is that Venezuelan companies are subject to M&A transactions in line with the applicable rules that regulate Venezuelan tender offers and existing international legislation. By making the decisions with regard to each individual M&A offer on the part of multinational participants, directors of Venezuelan companies express their opinions and resolutions on the reasonability and appropriateness of a particular tender offer to protect M&A process against hostile takeovers. As usual, Venezuelan target companies explain their position by the implementation of repurchase plans to increase the offered price by unsolicited foreign bidders. Such denials were common in the M&A deals made by AES for EDC, AES for CANTV, and Telmex/America Movil for CANTV (Latin Lawyer, 2013).
M&A transactions in Venezuela are made in mainly the same fashion as in other jurisdictions and involve the following procedural requirements: signing non-binding letters of intent or confidentiality agreements, due diligence investigation, signing of the M&A agreement. These procedural steps are followed by “disclosure of the transaction, tender offer process, and closing of the transaction” (Latin Lawyer, 2013, p.2). According to the applicable procedures and contrary to other legislations, Venezuelan laws disallow the squeeze-out of Venezuelan company shareholders (Kalicki and Goldwyn, 2005).
The country risks are also explained by the implementation of strict exchange controls in Venezuela. These measures adversely affect overall M&A activity in Venezuela and lower the acquisition potential of foreign investors. In line with the existing exchange control regulations, it is necessary to obtain foreign exchange approvals to repatriate proceeds and dividends on investments. Such requirements artificially create devaluation, investment and regulatory risks and overall discourage prospective foreign purchasers. The situation gets critical once the foreign exchange approvals are not granted or delayed. Furthermore, national legislation requires structuring each acquisition to allow foreign investor to request foreign exchange approvals. The final risks observed by most of M&A and financial experts is that the existing exchange control regulations in Venezuela complicates the financing of acquisitions with bank debt that is denominated in foreign currencies (Latin Lawyer, 2013).
Conclusion
Considering 2012-2013 M&A dynamics with regard to Venezuelan oil companies, US investors should take numerous factors into account before deciding on purchasing or investing in a company from this country. First of all, it is necessary to consider political climate and economics as political and economic trends are changing in a fast fashion. Furthermore, various legislative restrictions deprive foreign investors from investing in Venezuelan economics. Finally, the M&A business is much hindered by the hostile takeovers who speculate on such transactions and much complicate the status of foreign acquirers in Venezuela.
- Eiteman, D. K., Stonehill, A. I. and Moffett, M. H. (2012). Multinational Business Finance, 13th edition, Global Edition, Pearson Australia.
- Kalicki, J., Goldwyn D. (2005). Energy and Security. Woodrow Wilson Center Press.
- Latin Lawyer (2013). Venezuela, [Online]: Available at: http://latinlawyer.com/reference/topics/55/jurisdictions/24/venezuela/
- Mommer, B. (2001). Venezuelan Oil Politics at the Crossroads. Oxford Institute for Energy Studies, Monthly Commentary.
