Corporate M&A 2020

Last Updated February 25, 2020

Panama

Law and Practice

Authors



Alemán, Cordero, Galindo & Lee (Alcogal) represents both purchasers and sellers in all types of local and international transactions involving Panamanian corporations and operations located in Panama. The firm has advised Citibank, Scotiabank, Julius Bär, Grupo Aval, First Quantum Minerals Ltd, Celsia SA, Equity International, Nord Anglia Education, Banco Panamá, Grupo Aval, and Cable & Wireless Panama, among others, with their M&A matters. The firm advises clients, taking into consideration tax, regulatory, liability and confidentiality matters, and provides counsel to clients on the reorganisation and restructuring of their operations and in the drafting of articles of incorporations and bylaws. Alcogal has acted as legal counsel for many corporate and banking mergers, for instance, advising Banco Panamá in its merger with a subsidiary of Banco Aliado, Julius Bär in regard to its acquisition of BoA/Merrill Lynch’s operations in Panama, BBVA in the sale of its local banking subsidiary to BAC Panama, and Citigroup in Scotiabank’s purchase of Citigroup’s retail and commercial banking operations in Costa Rica and Panama.

In Panama, the M&A market has been active during the last 12-month period, as compared to recent previous years.

Between 2010 and 2016, the Panamanian economy experienced unprecedent growth (constantly over 5% GDP growth), which in turn led to the establishment of many foreign business in Panama. Those years were a period of significant M&A activity, particularly in the financial and industrial sector. Starting in 2018, Panama’s economic growth has slowed to about 2% to 3% GDP growth per year. 

Even though those numbers are much lower to the growth the country had become accustomed to, as they are still above the world median, Panamanian companies have remained attractive targets for foreign investors. Additionally, having a dollar economy and no exchange controls has made Panama an attractive target for multilatinas.

The M&A market was very active in 2019, particularly in the financial services industry (banking) and we expect this trend to continue into 2020. The market is primarily driven by private M&A. However, in 2018 the sale of Inmobiliaria Don Antonio (Grupo Rey) to Corporacion Favorita, an Ecuadorian group was structured by way of a Public Bid (OPA). 

The last year two years have seen a merger between Banco Panama and Banco Aliado, and the acquisition of Banvivienda by Global Bank. There was also an M&A transaction announced involving the acquisition of the sixth largest bank in Panama. In recent years, the telecom sector has also been very active with the acquisition made by Milicom of Telefonica and Cable Onda, a dominant player in the Panamanian market for pay-TV, internet and telephone services.

Although there are no specific driving factors behind an increase in M&A activity for the coming year, it is certainly the case that Panama’s economic growth, compared to that of the region, makes local companies attractive targets. Additionally, local companies are incentivised to consolidate when they operate in competitive industries. It is worth noting that transactions, particularly in the Central American region, tend to be structured with Panamanian holding companies who have operations in the region (such is the case of most Central American financial institutions).

It is expected that most of the M&A activity will continue to take place in the financial industry (banks, investment advisors, and insurance companies). Given the slower economic growth registered in the past two to three years, an increase in  activity in the distressed asset market is also anticipated.

This being said, the outbreak of COVID-19 provides a degree of unpredictability to the market.

The financial industry (mostly mid-size and smaller banks) has experienced significant M&A activity in the past 12 months. Additionally, an uptick in M&A has been seen in the energy sector. 

There were significant acquisitions by international players in the energy market approximately five to seven years ago and now those international players themselves are being purchased, which has led to the indirect change of control of several Panamanian entities.

Cash offers and standard share purchase agreements and mergers are the most common means for acquiring a company in Panama. Acquisitions in the distressed asset market are typically structured as asset purchases. 

However, asset purchases in Panama are more challenging to document as the transfer of certain assets require specific formalities (public deeds, registrations, etc). Mergers are also quite common.

Panama does not have an M&A regulator per se. The primary regulator for M&A activity in Panama will depend on the nature of the business undertaken by the target company. For example, in the case of banks, the primary regulator would be the Superintendence of Banks of Panama, and in the case of broker dealers or investment advisory firms, the primary regulator would be the Superintendence of the Securities Market (formerly known as the National Securities Commission). In all cases that may result in an economic concentration, the antitrust authority (known as ACODECO) could play an important role.

Please bear in mind that the relevant Panamanian laws governing M&A include Law No 32 of 1927, as amended (the “Corporations Law”), Law No 4 of 2009 (the “Limited Liability Company Law”), the Commercial Code and the Civil Code. Additionally, industry specific regulations (banking, securities, mining, energy, etc) may come into play. As M&A activity tends to lead to taxable events, the Tax Code and its regulations are also applicable.

There are no restrictions on foreign investment in Panama. To amplify, there are no restrictions on the amount of foreign investment permitted or the nationality of said investor. There are, however, restrictions on investments in certain specified areas, such as: investments in the retail sector by non-Panamanian nationals (subject to certain exceptions), water and sewage services, radio services and transmission of electricity, among others.

The applicable antitrust legislation in Panama that applies to business combinations is Law No 45 of 31 October 2007 (as amended).

The submission of a transaction for review to the Authority for Consumer Protection and Defense of Competition (ACODECO), the antitrust regulator in Panama, is not mandatory. The economic agents interested in a “prior review” of any particular transaction may submit any transaction to the review of ACODECO, requesting their favourable opinion.

ACODECO must issue a decision within 60 calendar days after it has received all the information requested. If it does not respond in that timeframe, the approval is deemed to have been granted. ACODECO may request additional information within 20 days of the initial filing. ACODECO usually issues a resolution indicating that no additional information is needed, which triggers the 60-day countdown.

A list of documents and information has to be submitted, such as: the transaction documents, market and industry studies of the respective parties to the transaction, corporate authorisations and the background of the parties to the transaction, among others. Every document that is produced abroad has to be legalised and translated into Spanish (if the documents are in a foreign language) by a licensed translator in Panama. A technical antitrust (economic/market based) analysis has to be attached as part of the filing.

ACODECO may impose certain conditions to be complied with by the transaction or order partial or total unwinding, termination of control or annulment of acts. 

On the one hand, the law has a safe harbour provision and, if the transaction receives the “favourable concept” from ACODECO, the parties may carry out the economic concentration without the risk of the legality of the transaction being questioned. On the other hand, the economic concentrations that did not voluntarily submitted themselves to prior verification, may be challenged by ACODECO or third parties within the three subsequent years after the transaction is carried out. ACODECO has the authority to investigate and challenge economic concentrations which have not been submitted to prior verification.

Therefore, whether or not a concentration has the effect or potential effect of lessening, restricting, harming or impeding free competition and free access of the economic agents will be deemed to be legal or illegal depends on an analysis of its positive and negative effects on competition, production, competitiveness, among others, in each of the relevant markets.

In the case of Panama, acquirers should be aware that, as a general rule, under the Panama Labor Code, employment relationships may terminate in any of the following manners:

  • Mutual Consent: by mutual consent if it is in writing and does not involve waiver of any rights accrued by the employee;
  • Expiration of Term: upon expiration of the agreed term if the employment is for a definitive term;
  • Dismissal or Resignation: upon dismissal with just cause or the resignation of the employee; and
  • Unilaterally by Employer: by the unilateral decision of an employer, within the formalities and limitations established by the Labor Code, such as employees with indefinite period contracts with less than two years of continuous services.

In the context of an M&A transaction structured as an asset sale, it is more likely that the employment relationships would terminate either by mutual consent of the parties, or unilaterally by the employer. In the event that an employee is fired for just cause, and contests the termination, the cause would have to be proven in a labour proceeding, or the company will be ordered to reinstate the employee, with any applicable fees and penalties associated with the unjustified termination; or payment of indemnisation, backpay, and surcharges if the company does not wish to reinstate them.

Our suggestion in a transaction of this type, and in relation to those employees that will not be assumed/transferred to the acquirer’s entity(ies), our suggestion would be for them to be terminated by mutual consent ("mutuo acuerdo") if there is no justified cause for termination. The likely components of the termination payment in this scenario would be:

  • Seniority bonus (prima de antiguedad): the payment for seniority bonus is equal to one week for every year of employment.
  • Thirteenth month (décimo tercer mes): under Panama law, employees are to be paid a thirteenth month every year, equal to one month’s salary. This is payable in three installments, every four months.
  • Vacations (vacaciones): employer must pay any accrued and unpaid vacation time.
  • Bonus/indemnity: although not mandatory, and subject to negotiation, in order to induce an employee to agree to a termination by mutual consent, it is typical to pay a “bonus” or “indemnity” payment in addition to the accrued benefits listed above. This is roughly equal to one month for every year of employment.

An employee cannot waive payment of bullet points one to three above. Bullet point four is subject to negotiation. In all cases, termination will be subject to a case-by-case analysis based on the particulars of each employment relationship.

Additionally, it is becoming more common to see golden parachute arrangements (both by way of the issuance of shares or cash), which typically include a premium for the CEO and certain key employees, payable upon the completion of a business combination. These arrangements require careful review at the moment of a business combination because depending on how they are structured may lead to labour liabilities going forward.

Generally, there are no national security review of acquisitions in Panama. Having said this, there are certain specific industries that cannot be held by foreigners, as ownership is limited to the State (for example, energy transmission, water and sewage, among others).

There have been no significant court decisions or legal developments related to M&A transactions in Panama in the last three years.

There have been no significant changes to takeover law in the past 12 months, nor is takeover legislation under review, in current knowledge, in a way that could result in significant changes in the coming 12 months.

It is not customary for a bidder in Panama to build a stake in the target prior to launching an offer.

As a general rule, there are no material shareholding disclosure schedules. However, in the case of regulated entities, in general terms, material shareholding disclosure thresholds and filing obligations are triggered whenever “control” is affected. Control may be construed as the direct or indirect power that allows the exercise of a determining influence over the administration, direction and/or policies of an entity, whether by ownership of shares with voting rights, contractual rights or other means.

It is also considered “control” whenever a person, individually or by mutual agreement with other persons, is owner of exercise rights over no less than 25% of the outstanding social capital holding voting rights. It is understood to be "control" provided that a person(s) owning any other lower percentage of the social capital has a determining or decisive influence in the management of the entity, by itself or in agreement with others, whether directly or indirectly shareholders of the entity

Corporate law does not provide for specific hurdles to stakebuilding in Panama; such hurdles, if any, are more likely the result of provisions in the articles of incorporation or bylaws of the relevant company, but are not common in Panamanian corporations.

Dealing in derivatives are allowed in Panama, though they are not specifically regulated in a meaningful manner.

Filing/reporting obligations for derivatives under securities disclosure and competition laws are not specifically regulated in Panama.

Shareholders are not generally required to make known the purpose of their acquisition and their intention regarding control of the company in Panama, except in certain regulated industries (such as banking, insurance and financial services, among others) which require prior regulatory approvals.

A takeover offer of a public company must be made to all the shareholders, with equal terms and conditions and the purchase price must be paid to all shareholders who accept the offer.

If a bidder offers to purchase more than 25% of the shares of a public company, or offers to purchase any number of shares which, as a result of said purchase, would result in the bidder owning more than 50% of the issued and outstanding shares of the public company, the offer must be subject to the public tender offer rules under the securities laws.

If the tender offer will result in the bidder owning more than 75% of the issued and outstanding shares of the public company, the offer must be made for all shares of the target which are not owned by the bidder.

In the case of private targets, any disclosure will depend on the articles of incorporation or any applicable shareholder agreements.

Market practice on timing of disclosure does not materially differ from legal requirements.

The scope of due diligence usually conducted in Panama in a negotiated business combination is fairly standard, including tax, legal, financial, environmental, among others, depending on the nature and activities of the target entity.

Standstill and exclusivity arrangements are becoming more common in M&A transactions in Panama.

It is permissible for tender offer terms and conditions to be documented in a definitive agreement.

The duration of an M&A process in Panama will vary greatly, mostly depending on the complexity of the transaction and whether it is in a regulated industry. The average process for a regulated entity would generally take between four to six months between signing and closing.

In a public M&A structured through an OPA (Oferta Publica de Acciones), once a purchase is attempted of over 25% of the issued capital, or an amount of shares that would make the purchaser hold over 50% of the issued capital of a company, an OPA would be triggered, which would require that all shareholders are offered the opportunity to sell their respective shares. As soon as the OPA is launched, trading on the shares will be temporarily suspended.

Cash is more commonly used in Panama as consideration. Having said this, consideration can also be equity in a different entity or any other chattel property.

There is no specific M&A regulator, however, in regulated entities such as banks, broker dealers, insurance companies, etc, the regulator will analyse the conditions included in takeover offers as part of its analysis when deciding whether to approve the transaction or not. With respect to public tenders, the offer has to be open for at least 30 days.

Public tenders can be conditioned on a minimum amount as a condition for the offer to be effective.

A business combination can be conditional on the bidder obtaining financing. It is not typical to see transactions conditioned on the bidder obtaining the required financing. In fact, it has become common that sellers request assurances that the bidder will have the required funds at closing.

M&A financing in Panama is typically carried out by local or international banks. In Panama, there is no limitation on international lending. Less frequently, M&A transactions are financed by way of local or international securities issuances. The Panamanian securities market has grown substantially in the past few years and is able to accommodate larger transactions that would previously have taken place outside Panama.

It has become more common to see break-up fees included in M&A transactions. In a public tender offer, any person can launch a competing offer. Additionally, any holder of shares can revoke its acceptance at any time while the tender is open.

If a bidder does not seek 100% ownership of a target, then the bidder can seek any additional governance rights with respect to a target that would not result contrary to law of public policy, including voting arrangements, management provisions, special majority decisions at the board and shareholders level, among others.

It is possible for shareholders to vote by proxy in Panama.

Squeeze-out mechanisms, short-form mergers or other similar mechanisms are not commonly employed to buy shareholders that have not tendered following a successful tender offer. The viability of these mechanisms are unproven and may be questionable under Panama law.

It is not common to obtain irrevocable commitments to tender or vote by principal shareholders of the target company.

How and when is a bid made public? In a public company, a bid is made public once a purchase is attempted of over 25% of the issued capital or an amount of shares that would make the purchaser hold over 50% of the issued capital of a company. This would only apply to shares that are registered at the Superintendence of Capital Markets (the “Public Bid”).

As a general rule, applicable to corporations, pursuant to Article 13 of the corporation’s law of Panama, to the extent the articles of incorporation of the company do not provide otherwise, each shareholder has a first right of refusal to subscribe to new shares issued by virtue of a capital increase of the company. in the same proportion of shares said shareholders hold.

In light of this, if the company intends to increase its capital and issue new shares this must be disclosed to the existing shareholders of the company in order for them to be able to exercise their first right of refusal.

Moreover, in respect of companies whose shares are registered with the Superintendence of Capital Markets (SCM), pursuant to Accord No 3-2008 on “Relevant Events Communications” (Comunicados de Hecho de Importancia), whenever there are mergers or consolidations that involve the issuer of the shares registered with the SCM, said events shall be communicated to the SCM and to the public.

This communication shall include information on the form, means and times set forth in the aforementioned Accord, and provided on the working day following the approval of the merger or consolidation by the Board of Directors of the company that is a registered issuer with the SCM, and the workday following the approval by the shareholders of the companies that are part of the merger or consolidation.

If the companies involved in the merger or consolidation are subject to other regulations, these shall issue the Relevant Events Communications on the following workday, in accordance with the provisions set forth in the corresponding regulation.

Until the public communications have been made, all persons involved in the merger or consolidation process of a registered issuer with the SCM are subject to the privileged information provisions established in the Panama Securities Laws and to the criminal provisions that may apply.

Once the merger, consolidation or spin-off agreement has been recorded with the Public Registry of Panama, a copy of it must be sent to the SCM within the two business days its registration date. 

Additionally, when a public bid is launched the SCM must be sent the following principal documents: prospectus or offering document, guarantee of the public bid, a draft of the announcement to be published, the contracts part of the offer, the corporate authorisation of the offeree and the financial statements for the previous three years of the offeree.

In a public bid, the bidder needs to provide audited financial statements for the previous three years. Listed companies and financial institutions are required to use IFRS or US Generally Accepted Accounting Principles (US GAAP), pursuant to regulations issued by the Superintendence of Banks and the Superintendence of Capital Markets. Insurance companies are required to apply IFRS.

If the bid in question is a public bid, then all transaction documents must be disclosed in full. All transaction documents need to be sent to the recipients of the offer as well as a document which summarises all aspects of the proposed transaction.

Panama’s Commercial Code, Article 444 (which applies generally to commercial legal entities, including Panamanian corporations), establishes that directors are, in general, not personally liable for the obligations of the corporation, but may incur personal liability for:

  • the effectiveness of the payments made by the partners;
  • the actual existence of any dividend payment agreed upon;
  • correct accounting;
  • improper fulfilment or performance of their commission [mandate], as corporate representatives; and
  • violation of laws, the articles of incorporation, by-laws, or agreements and resolutions of the shareholders’ assembly. If the violation of any of the foregoing occurs through the issuance of a resolution, those directors that were absent from the meeting or objected in due time, will be exempted from liability.

Directors duties are owed only to the company shareholders. However, if a dividend or distribution of assets is declared such that the value of the assets of the company is reduced to less than the amount of its debts, a director will be jointly and severally liable vis a vis the creditors of the company for any resulting harms, taking into account:

  • its capital;
  • if the amount of the capital is reduced; or
  • if a declaration or a report is made that is false regarding a point of substance, the directors that have given their consent for such acts, with knowledge that with such the capital is affected, or that the declaration or report are false.

Depending on the size of a company and its board, it is common to have committees whose role it is to asses business combinations, as a strategic matter, prior to a transaction taking place and at a later time in order to successfully integrate or transition the business.

There is no similar concept in Panama except that directors must act with the prudence of a bonus pater familias, which is analogous to the standard of care of a reasonable person.

Typically, tax, legal and financial advice is typically given to directors in a business combination. It is fairly common for companies to have corporate governance consultants which are also, typically, asked for advice in the context on business combinations.

There is no awareness of any conflicts of interests of the directors, managers, shareholders of advisers and, as such, none are the subject of judicial or other scrutiny.

Typically, the bylaws of Panamanian companies expressly allow that directors enter into business with the respective company whose board they sit on. Nonetheless, recently it has become more common for Companies to include in their bylaws that, in the event that a director has a conflict of interest, they should abstain from participating in the decision being taken.

Hostile tender offers are permitted in Panama. However, public tender offers are possible only with respect to shares registered with the Superintendence of Capital Markets. Current knowledge provides that all public bids that have taken place (which have not been many) have not been hostile.

The Securities Laws do not permit that the issuer, or anyone else, purchase shares while a public bid is open.

There is a poison pill mechanism included in the Securities Laws of Panama but it is only applicable in a particular set of circumstances that would make public bids of those companies near to impossible. This would only apply to companies:

  • registered in Panama or abroad;
  • that have their offices or are authorised to do business in Panama;
  • that have more than 3,000 shareholders (the majority of whom must be domiciled outside of Panama); and
  • that have permanent offices in Panama and investments of over USD1 million.

Local laws and regulations do not include any specific director duties when enacting defensive measures.

There is no provision for directors to be able to "just say no". In a public tender, the offer is made to each individual shareholder and, as such, the directors cannot control whether a shareholder decides to sell its shares.

Shareholder litigation is uncommon in connection with M&A deals and there has not, as yet, been any case in which a shareholder has intended to block a transaction. In certain transactions, litigation brought by a third party with the intention to cause a material adverse effect that would impede closing has been seen. 

As mentioned in 10.1 Frequency of Litigation, litigation is fairly uncommon, but if it were to occur, this would typically be once the transaction is completed. If the plaintiff is able to prove irreparable harm, they may be able to obtain an injunction, which could, in theory, prevent a transaction from going forward until the merits of the litigation are passed upon.

Shareholder activism is not an important force in M&A in Panama.

This is not applicable in our jurisdiction.

As mentioned, shareholder activism is not common and, as such, we don’t see activists interfering in transactions prior to completion.

Alemán, Cordero, Galindo & Lee (Alcogal)

6th Floor
Humboldt Tower
East 53rd St.
Urb. Marbella
Panama City
Panama

+507 269 2620

+507 264 3692

ealfaro@alcogal.com www.alcogal.com
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Trends and Developments


Authors



Arias, Fabrega & Fabrega have been advising leading international financial institutions and multinational corporations, as well as some of the largest domestic companies in Panama, for over 100 years. Highly specialised multidisciplinary legal teams enable efficient handling of complex M&A transactions, covering corporate law, antitrust, taxation, securities regulation, banking, environmental law, labour, real estate, regulatory work and IP. The M&A team consists of 13 lawyers with a wealth of international experience, and nearly half the team admitted to the New York or Florida Bar. Recently the firm has counselled Grupo Rey in the sale of a 73% stake to Favorita, United Continental on a complex joint venture deal with Avianca and Copa, shareholders of Cable Onda in the sale of 80% to Millicom; Assicurazioni Generali in an asset sale agreement to ASSA, and Inchcape in its acquisition of Grupo Rudelman. The authors would like to thank legal assistant Daniel García de Paredes, who helped bring this chapter to completion.

Overview

M&A activity in Panama over the last two years has been stable but focused on particular industries. According to a 2019 report published by the Economic Commissions for Latin America and the Caribbean (ECLAC/CEPAL), Panama received 51% of all foreign direct investment (FDI) in Central America the previous year, reflecting an unprecedented growth of 36%. Panama as the fifth-largest recipient of FDI in the region.

Notable acquisitions in retail and telecommunications marked the 2018-19 period, such as Corporación Favorita’s acquisition of 73% of Grupo Rey (leading supermarket chain) through a public tender offer, ITOCHU Corporation’s acquisition of majority ownership in Ricardo Perez, SA (leading car distributor), and Millicom acquiring Cable Onda, SA (main telecom provider) and Telefonica’s local Movistar (a leading mobile provider) operations. The banking industry has also been marked by consolidating transactions in 2019, such as the closing of the Banco Aliado-Banco Panama, the acquisition of Multibank by BAC’s parent company (Grupo Aval) and the Global Bank-Banvivienda mergers.

M&A activity in Panama is expected to continue in 2020, as Panama’s relatively steady GDP growth continues, establishing Panama as a solid and stable option for FDI, a status only amplified in relation to the region’s current economic woes. The most active sectors for M&A activity will continue to be banking, as further consolidation in the market is expected, and telecom and technology. Increased lending and technology upgrade and compliance costs specific to Panama’s banking sector, and a recent legislation allowing for consolidation between mobile carriers are imminent, and are expected to drive M&A and FDI levels in both these industries.

Over the past few years, M&A activity has been characterised by controlling-stake acquisitions of local target companies by foreign buyers.. Cross-border transactions from investors from other Latin American countries, Europe and the United States have led these statistics. As Panama’s GDP continues to grow, up to and estimated 5.5% in 2020 according to the Inter-American Development Bank (pre-COVID-19), Panamanian companies will become even more attractive targets for foreign buyers. This high level of activity spurs purely domestic M&A deals as local companies look for strategic alliances in order to compete with new market entrants, which are usually large multinationals, or to better position themselves as viable targets for further acquisitions.

However, certain limitations to future M&A activity and FDI may be recent corruption scandals and the inclusion of Panama in Financial Action Task Force (FATF) and EU tax haven lists. In addition, authorities overlooking industries with specific regulations, such as energy, telecom, securities, and banking, have taken a more proactive approach, which may have impacted the overall level of M&A activity.

Several other factors have affected the economy in general and, as such, levels of M&A activity in the country. In particular, 2019 was an election year which often produces uncertainty regarding investor and consumer behavior. The months surrounding the elections were marked by a general downturn in most industries, and the new government’s slow start further fueled the pre-existing uncertainty which commonly plagues election years in Panama.

Leading local economists also warn that formal employment may likely continue to grow, and that the government deficit may limit the possibility of public investments in infrastructure works which has been consistent over the past decade. In a push to further incentivise foreign investment in the country, the new administration appointed a Minister-Counsellor for the fostering of private investment.

The cabinet-level position seeks to cut down bureaucracy for transactions and speed up regulatory approvals with public institutions be it an application for a license, paying tariffs, fees, or entering into contracts with the government. A second stated goal of the position is to bring more transparency to the contracting process with government institutions, so as to foster more investment and higher participation levels across the board.

Banking Consolidation Will Likely Continue

Over the past few decades, Panama’s banking industry has undergone an era of consolidation, and numbers suggest the trend will continue over the coming years, as it tends to occur in more mature economies. In the year 2000, there were 57 general-license banks in Panama. In 2017, that number came down to 44 and in 2020, 40. This level of consolidation amongst small to medium sized banks is expected to pick up as banks face pressure due to local regulatory burdens and increased compliance standards.

Most recently, as mentioned, Banco Aliado acquired Banco Panamá, a younger bank. Through the merger, Banco Aliado sought to strengthen its consumer services and broaden its client base. Between 2019 and early, Grupo Aval, a Colombian conglomerate, closed the acquisition of Multibank and Global Bank also acquired Banvivienda.

Recent and Future Telecom Deals

The telecommunications industry in Panama has undergone an active M&A period as well. In 2018, Millicom acquired both Cable Onda, Panama’s main cable TV provider and leading internet and phone provider, and Movistar, a leading mobile-phone carrier. Liberty Global had also acquired Cable & Wireless Panama back in 2015.

Further fueling the potential for M&A activity in this industry, the government recently enacted Law 36 of 2018 which would allow for further consolidation in the telecommunications industry, and specifies that the law-mandated minimum of four mobile carriers may be reduced to three, should a proposal for a merger or such transaction be presented.

Start-Up Activity

Panama-based start-ups have also received favourable attention from mature investors, both foreign and local. Many start-ups have seen substantial cash injections from private equity groups, regional players, and international buyers looking to enter the ever-stronger Latin American playing field.

Encuentra24, an online classifieds and real estate platform first launched in Panama, is reported to have secured UUSD5 million in funding from private equity groups. Degusta, a food-industry centric platform and app, is reported to have secured a first round of initial funding, permitting subsequent stable growth. Appetito24, a food delivery app, was acquired by German conglomerate Delivery Hero. Other applications, such as Cuanto, a payment-processing service platform, has received support from American seed accelerator Y Combinator. The Selinas hospitality group has also been a unicorn-type success story, starting in Panama and now boasts 42 locations worldwide, and recently secured a USD100 million investment for their ambitious expansion strategy.

Panama’s friendly regulation is an attractive environment for foreign investors in tech-based companies and industries, and we expect a boost in strategic alliances and M&A activity in this sector to increase rapidly, as more startups seek investments and foreign companies foray into the Latin American market.

Two Uncommon Events

In 2019, two uncommon events took place: a hostile takeover and a public tender offer.

There is a limited history of hostile takeovers in Panama. In 2019, the creditor of a controlling shareholder in a NYSE-listed Panamanian holding company successfully undertook remedial measures upon breach by such controlling shareholder by appointing an independent third party to indirectly exercise the shareholder’s controlling voting rights in the Panamanian listed company.

Also uncommon are public tender offers. Corporación Favorita, an Ecuadorian business group founded in 1952 with presence in six Latin American countries and over 300 stores, acquired a 73% controlling interest in Rey Holdings Corp, successfully closing the first public tender offer in approximately ten years.

Regulatory Developments

In recent years, Panama’s tax authority (DGI) has recently amplified audit and enforcement measures for capital gains tax, focusing particularly on high-profile transactions. The DGI has also begun reviewing and, on occasion, conducting full audits of local targets, triggered by public announcements of deals being signed or closed. In addition, stricter criminal statutes for tax evasion were enacted in early 2019.

ACODECO, Panama’s antitrust and consumer protection agency, has also increased scrutiny in recent deals, resulting in potential buyers to demand stricter representations and indemnities. This has been focused on purely local deals than for deals where the buyer has no prior presence in the country.

Such regulatory developments may be a sign that that authorities are attempting to increase scrutiny, as M&A activity increases in the country, and such trend may continue for future deals.

Expectations for 2020 and Beyond

While Panama’s economic growth has decelerated in recent years, M&A activity and FDI has remained steady and even increased in certain industries. Recent trends suggest this will remain the case and may increase across the board. International challenges cannot be ignored, however, as the ongoing trade war between the USA and China, and now the recent COVID-19 outbreak, have affected the international air transport and shipping industries and thus, the Panama Canal, among other industries that will continue to be affected.

That said, the general trend in Panamanian companies is one of increasing corporatisation, with boards of directors and shareholders becoming more professional and sophisticated in most industries. This trend brings forth positive changes, such as aversion to negative publicity, shareholder criticism, regulatory pressure and liability from potential litigation, as the country seeks to mitigate corrupt practices and enforce accountability for money laundering activities and mismanagement of public funds, all of which have caused scandals and negatively affected the country as a whole in recent years.

The increased foreign ownership of Panamanian companies has also brought with it managerial expatriate talent over the last decade. Over this same period, international directors have increased their presence on local corporate boards, adding international and industry-specific experience and backgrounds to the companies they oversee. The continued growth experienced by Panama in the last decade and recent liquidity events have also led to a rise in the number and sophistication of “family offices” established by local economic groups. These family offices are now mostly managed by professionals and overseen in certain cases by independent directors.

Finally, the new administration of President Laurentino Cortizo has announced that it will focus on taking the necessary measures to be removed from the tax havens lists. In early 2020, OECD’s Pascal Saint-Amans announced that Panama’s inclusion in the EU’s tax haven lists will not last, as the country is taking “giant strides” towards aligning with international transparency practices. One such practice is the creation of a law-mandated registry for ultimate beneficial owners. Under such law, all companies incorporated in Panama will have to provide information on their ultimate beneficial owners, and Panama’s financial task force, the Public Ministry, which pursues criminal activity, and the Ministry of Economy and Finance will have access to such records.

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Law and Practice

Authors



Alemán, Cordero, Galindo & Lee (Alcogal) represents both purchasers and sellers in all types of local and international transactions involving Panamanian corporations and operations located in Panama. The firm has advised Citibank, Scotiabank, Julius Bär, Grupo Aval, First Quantum Minerals Ltd, Celsia SA, Equity International, Nord Anglia Education, Banco Panamá, Grupo Aval, and Cable & Wireless Panama, among others, with their M&A matters. The firm advises clients, taking into consideration tax, regulatory, liability and confidentiality matters, and provides counsel to clients on the reorganisation and restructuring of their operations and in the drafting of articles of incorporations and bylaws. Alcogal has acted as legal counsel for many corporate and banking mergers, for instance, advising Banco Panamá in its merger with a subsidiary of Banco Aliado, Julius Bär in regard to its acquisition of BoA/Merrill Lynch’s operations in Panama, BBVA in the sale of its local banking subsidiary to BAC Panama, and Citigroup in Scotiabank’s purchase of Citigroup’s retail and commercial banking operations in Costa Rica and Panama.

Trends and Development

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Arias, Fabrega & Fabrega have been advising leading international financial institutions and multinational corporations, as well as some of the largest domestic companies in Panama, for over 100 years. Highly specialised multidisciplinary legal teams enable efficient handling of complex M&A transactions, covering corporate law, antitrust, taxation, securities regulation, banking, environmental law, labour, real estate, regulatory work and IP. The M&A team consists of 13 lawyers with a wealth of international experience, and nearly half the team admitted to the New York or Florida Bar. Recently the firm has counselled Grupo Rey in the sale of a 73% stake to Favorita, United Continental on a complex joint venture deal with Avianca and Copa, shareholders of Cable Onda in the sale of 80% to Millicom; Assicurazioni Generali in an asset sale agreement to ASSA, and Inchcape in its acquisition of Grupo Rudelman. The authors would like to thank legal assistant Daniel García de Paredes, who helped bring this chapter to completion.

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