Peru’s securities and exchange authority has opened an investigation into the sale of a controlling stake in Corporacion Lindley to Arca Continental.
When Corporacion Lindley and the Mexican Coca-Cola bottler announced the deal in which Arca Continental would acquire control of the Inca Kola bottler last September, owners of Lindley’s non-voting shares protested their exclusion from negotiations.
Peru’s Andino Asset Management and Chile’s Fratelli Investments, the latter of which counts former Chile President Sebastian Piñera as an investor, appealed to Peru’s Stock Market Superintendency (SMV), which announced a formal investigation into the deal this morning.
“Corporacion Lindley is a company with over 105 years of history in which it has always been characterized by respect for the law,” read a company statement. “So it will respond within the appropriate deadlines to the punitive administrative process in order to exercise its rights and present its respective arguments to the SMV.”
At the heart of the matter is whether the Lindley family, which founded and controls Peru’s iconic soda brand, used inside information to their advantage in negotiations with Arca.
Arca Continental purchased 48% of Corporacion Lindley’s common stock representing 53% of voting shares for $760 million plus $150 million for a non-compete clause. Arca then offered private investment firms $0.89 per share of non-voting stock which makes up 11% of the company’s total equity.
The investment firms claim that the 70% discount from the $2.95 paid per voting share is excessive. They also say the $150 million non-compete fee should be paid to the company and not the Lindley family. Finally, they demand the investigation of $137 million in land sales by the company to the Lindley family after the shares were transferred to Arca.
“We want Arca and Coca-Cola to sit down and say we have certain corporate governance standards across the world – we need to give you a fair price,” said Carlos Rojas, partner and founder at Andino. “There are 2,600 investors in non-voting Lindley shares, and all we got was a two-page press release about the sale, thank you very much.”
“From what they’re saying in the press, it seems [they want] to force this idea that they have the right to be treated the same as common shareholders and require [Arca] to buy their shares,” said Alberto Rebaza, lawyer for the Lindley family. “All of the non-voting shareholders, many of whom are sophisticated investors who know the rules of the market, know that there is nothing here that amounts to unfair treatment.”
The legal battle overseen by Peru’s equities regulator comes at a time when the Lima stock exchange (BVL) narrowly avoided being downgraded to “frontier market” by index provider MSCI due to low liquidity. Peru’s finance ministry worked with the BVL to lower fees and increase options in the exchange to maintain an “emerging market” rating.
However the MSCI stated it would re-evaluate Peru again next year. International investors and regulatory bodies will monitor how the SMV handles the Arca-Lindley deal as a case study on shareholder rights in Peru.
Sources
Notificación de inicio de un Procedimiento Sancionador (SMV)
La SMV tendrá la última palabra en Caso Lindley (El Comercio)
SMV inició proceso sancionador contra Corporación Lindley (El Comercio)
Lindley: Acciones de inversión no pueden forzar una compra (El Comercio)
Accionistas de inversión de Corporación Lindley rechazan oferta (El Comercio)
¿De qué acusan Corporación Lindley y cómo se defiende? (El Comercio)
SMV inició proceso sancionador contra Corporación Lindley (Gestion)
SMV abrió proceso sancionador contra Corporación Lindley tras operación con Arca (Semana Economica)
Shunned Billionaires Said to Challenge Peru Bottler Deal (Bloomberg)