SAO PAULO, Oct 17 (Reuters) - Brazilian airline Gol Linhas Aéreas Inteligentes SA’s planned takeover of its loyalty program unit Smiles Fidelidade SA through a share and cash deal will force Smiles’ minority holders to receive Gol shares with weakened voting rights, according to documents related to the transaction and five people with knowledge of the matter.
Smiles shares slumped 40 percent on Monday after the buyout was announced, with minority holders facing the uncertainty of being forced to accept a yet-to-be determined price.
Smiles is listed on the Bovespa exchange’s Novo Mercado segment, which bars listing preferred shares with no voting rights and reserving voting shares for controlling shareholders.
Under the deal structure devised by Gol, whose voting shares are all controlled by the family of Gol founder Constantino de Oliveira Junior through an investment vehicle called Volluto, the airline’s stock will shift to the Novo Mercado segment.
Companies listed on the Novo Mercado segment can only be taken over via a share swap by other members listed on the segment or in a cash deal.
Gol’s current capital structure is partly to comply with Brazilian law that bars foreign ownership of airlines. Outside of the family-controlled shares, other stakes, including 12 percent held by Delta Air Lines Inc, are held via non-voting preferred shares.
Companies listed elsewhere on the Bovespa must buy out minority investors of companies listed in Novo Mercado with cash, as happened with rival loyalty program Multiplus, a transaction that would have been tough for Gol, which has 600 million reais ($161.38 million) in cash and net adjusted debt of 12.1 billion reais.
Smiles has a current market value of 3.9 billion reais.
The Novo Mercado-listed Gol will formally give voting rights to all shareholders, but the only asset owned by the company will be preferred shares in GLA, Gol’s operational company that will control the airline and Smiles. In the filing, Gol said the common shares will be owned by the Constantino family to comply with Brazilian law forbidding foreign ownership of airlines.
The change will be a downgrade for Smiles shareholders, who today have shares in the loyalty program operating company and a say in management decisions.
One Smiles shareholder, who asked for anonymity due to the sensitivity of the issue, said such a structure is unheard of and shareholders may question it with the regulator. “Novo Mercado was supposed to have an enhanced corporate governance,” he said.
Other shareholders who also asked for anonymity criticized Smiles’ decision in March to cut its dividend to 25 percent of profits from a former level of 100 percent. At the time, analysts said the decision would strengthen Gol’s liquidity.
Since then, Smiles’ shares have fallen nearly 60 percent, including Monday’s drop, and some shareholders are questioning how the recent declines will affect the combined cash-and-share buyout price for Smiles. Among Smiles’ largest shareholders are funds managed by Baron Capital, Morgan Stanley and XP Gestão.
Brazilian securities industry regulator CVM opened on Monday a formal analysis of the transaction, but CVM has not yet identified any irregularities, one source with knowledge of the matter said. The person added that as of Tuesday no shareholder had complained to the regulator.
Gol said in a response to questions from Reuters that all the transaction details are legal. “The reasons for the transaction relate to the competition in the loyalty program industry,” it said. The company also pointed out that other airlines have recently proposed similar transactions. ($1 = 3.7180 reais) (Reporting by Ana Paula Ragazzi and Tatiana Bautzer Editing by Christian Plumb and Leslie Adler)