The need and convenience of harmonizing cross-border takeover regulation in the Pacific Alliance; Lessons from the U.S., U.K. and E.U. experience La necesidad y conveniencia de armonizar la regulación de las adquisiciones transfronterizas en la Alianza del Pacífico; Lecciones de los Estados Unidos, Reino Unido y la experiencia de la Unión Europea

This article will answer the question of whether or not it is necessary and/or convenient to harmonize cross-border takeover regulation in the context of a Latin American economic block such as the Pacific Alliance. To this effect an overview of what the Pacific Alliance is, and the way how multiple economic sectors and areas have been integrated during the recent years will be made, specifically focusing on the creation and legal framework of the Latin American Integrated Market. Also, a general overview of the current takeover regulations of the four member countries will be analyzed in order to see where supranational regulation and harmonization is further needed in order to enhance and deepen the integrated market and the economic block as such. An analysis of the main lessons rendered throughout recent history from takeover regulation systems such as the U.S., U.K. and E.U. will allow us to *Attorney at law from the Universidad de Los Andes. Tax Legislation specialist from the Universidad Pontificia Bolivariana (UPB) and International Tax Law specialist from the Universidad Externado de Colombia. Master of Law with emphasis in Taxation from the Universidad Externado de Colombia. Currently undertaking an Executive LLM program at London School of Economics and a Ph.D. at the Universidad Pontificia Bolivariana in Colombia. Contacto: <J.Sanin-Gomez@lse.ac.uk>. Revista de la Facultad de Derecho de México Tomo LXX, Número 277, Mayo-Agosto 2020 DOI: http://dx.doi.org/10.22201/fder.24488933e.2020.277-2.76343 The need and convenience of harmonizing cross-border... Juan Esteban Sanín 600 make closing remarks1. Palabras clave: Adquisiciones transfronterizas; Globalización; Integración; Alianza del Pacífico; experiencia de los Estados. Resumen : Este artículo responderá a la pregunta de si es necesario o no y/o conveniente armonizar la regulación de las adquisiciones transfronterizas en el contexto de un bloque económico latinoamericano como lo es la Alianza del Pacífico. A este efecto, se realizará una visión general de qué es la Alianza del Pacífico, y la forma en que se han integrado múltiples sectores y áreas económicas durante los últimos años, enfocado específicamente en la creación y el marco legal del Mercado Integrado Latinoamericano. Además, se analizará una descripción general de las regulaciones actuales de adquisición de los cuatro países miembros, para ver dónde es necesaria la regulación supranacional y la armonización, con el fin de mejorar y profundizar el mercado integrado y el bloque económico como tal. Un análisis de las principales lecciones extraídas a lo largo de la historia reciente de los sistemas de regulación de adquisiciones, tales como los Estados Unidos, Reino Unido y la Unión Europea, nos permitirá hacer comentarios finales.


I. Introduction
Up until five years ago, the notion of "market for corporate control" 2 was practically inexistent in the Latin-American crossborder market place. This notion began to transcend when the Pacific Alliance became a priority for its member countries and for Latin-America as a key player in the world economy. The rise of tech and digital businesses (which can easily and rapidly expand throughout borders), the need to consolidate markets, the increase of foreign direct investment due -in part-to devaluation of the local currencies against the US dollar and the low returns on typical financial investments as opposed to the high returns of ongoing business, have opened the path for cross-border takeovers, as an alternative to Greenfield foreign direct investment, to develop in Latin-American countries. However, because of the scarcity of these types of operations in the region, Latin-American countries have not usually incorporated in their internal legislation crossborder takeover regulations, but only internal regulations which seem clearly insufficient for today's ongoing cross-border M&A operations.
The moment has come for the Pacific Alliance member countries to agree upon key principles and regulations that will enable the market for corporate control to flourish, without jeopardizing basic shareholders' rights. There is no clearer precedent, and non that applies so well to Latin-America, than that of the EU Takeover Directive. This, because of the integration process that is currently taking place through the Pacific Alliance. However, insights and lessons from well-developed takeover regimes such as 2 David Kershaw, Principles of Takeover Regulation, Chapter 1, Oxford University Press, 2016, when he states that "The market place within which corporations and their businesses are bought and sold in whole or in part". Revista de la Facultad de Derecho de México Tomo LXX, Número 277, Mayo-Agosto 2020DOI: http://dx.doi.org/10.22201/fder.24488933e.2020 The need and convenience of harmonizing cross-border... Juan Esteban Sanín 602 those from the United Kingdom and the United States can clearly serve a great purpose.
The opportunity seems to be quite unique; to be able to consciously draft a binding cross-border takeover regime using as precedent the historical lessons gained during the past century from the world's most industrialized nations and communities. This is a natural step after having consolidated the MILA -a common stock market for the Pacific Alliance-and having regulated the tax treatment of Pension Funds (Latin American biggest professional stock investors) in the Pacific Alliance. It will not be long until cross-border takeover operations emerge and, not having a clear regime on the subject, will only lead to cross-border disputes and litigation which could even trigger the member countries interest to remain in the Alliance.
II. The Pacific Alliance; a gateway to cross border takeover operations According to Sanín 3 , The Pacific Alliance is a Latin American economic trade block composed primarily by Colombia, México, Chile and Peru -acting as full members -, which are all Latin American countries that border the Pacific Ocean. Its aim is to form a Latin American in-depth integration area that can jointly widen the existing trade relations with other world economic blocks -especially with Asia-and that can ensure the freedom in the movement of goods, services, capital and people within its borders, as well as to foster "the mechanisms for cooperation between member countries". 3 Sanin, Juan E., "Taxation of Wealth under the Pacific Alliance; ¿a threat to global and regional economic growth or a chance to implement Piketty's 'global tax on capital'?", Universidad Nacional Autónoma de México´s Law Journal, núm. 272, 2018, pp. 987-1001  The need and convenience of harmonizing cross-border...

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(…) The current full members of the Pacific Alliance have a joint 225 million population, and a 35% of Latin American Gross Domestic Product, and, as a block, it "will rank as the fourth contributor to the world`s growth in the next five years.
The Pacific Alliance has become, more than any other form of Latin-American integration system, a new form of political cooperation arrangement across national borders. This is what Scott 4 would have referred to as "transboundary regionalism". It has also become a gateway for multiple endeavours such as cross-border takeover activism. In this sense, the transboundary regionalism reached as of today by the Pacific Alliance serves as a key platform for generating what Martynova 5 calls a "positive spillover of corporate governance standards" in cross-border mergers and acquisitions, between bidders and or targets in high corporate governance standards jurisdictions to those of not so strict standards.
Given the rapid sector changes, it is clear that investment through M&A is much more convenient in Latin-America that Greenfield foreign direct investment. Also, M&A´s "offer the additional benefit that they involve (in cases where foreign ownership is partial) local shareholders directly in the process 6 ", hence having a greater spillover of learning effects. OECD studies demonstrate that "following a cross-border takeover, most target 4 Scott, James, "Cross-border Governance in the Baltic Sea Region". Regional & Federal Studies vol. 12, núm. 4, 2002, pp. 135-153. 5 Marina Martynova, et al., "Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions", Journal of Corporate Finance, vol. 14, núm. 3, June, 2008: pp. 200-223. 6 LaLL, Sanjaya, "Implications of Cross-Border Mergers and Acquisitions by TNCs in Developing Countries: A Beginner´s Guide", QEH Working Paper Series, núm. 88, June 2002: 1-11. Revista de la Facultad de Derecho de México Tomo LXX, Número 277, Mayo-Agosto 2020DOI: http://dx.doi.org/10.22201/fder.24488933e.2020 The need and convenience of harmonizing cross-border... Juan Esteban Sanín 604 companies are found to enjoy a significant increase in operational efficiency and, as a corollary, in international competitiveness" 7 .
A) Latin-Americas integration and the current state of being of the Pacific Alliance Latin-American integration has been a slow but inevitable process due to the fact that its people and countries share a same regional identity. According to LEONE 8 a region is more than a geographical zone, it is a social construction that exists from collective interactions or a feeling of community between its members. And, according to Hansen 9 , an identity is constructed in a discursive, political, relational and social manner. From a constructivist perspective 10 , it is possible to identify a Latin-American regional identity, formed by the sum of the individual countries identities and turns into an unmodifiable feature in a particular culture.
Up until the creation of the Pacific Alliance, considered by many to be the world's eighth economy 11  listed companies 23 , as well as in closed companies. According to Gantiva 24 , this particular aspect has a significant impact on the applicable Corporate Governance policies, due to the fact that in markets with highly democratized ownership (such as the US and the UK), agency problems arise mostly between shareholders and corporate managers whilst in economies with concentrated share ownership (such as those in Latin American countries), agency problems arise mostly between controlling shareholders (who hand-pick 25 the managers) and minority shareholders.
Contrary to what occurs in Europe with the Takeover Directive 26 , Latin American countries do not have supranational legislation that regulates tender offers, corporate managers´ behaviour and shareholder protection in the midst of an -agreed or hostiletakeover operation. Therefore, there are no common standards for these countries to enact legislation according a given set of principles 27 . Internal regulations in Ibero-American 28 States generally 23 Gantiva, Camilo et. al., "Capítulo 11. El Mercadode Control Societario en Iberoamérica", Estudio sobre Gobierno Corporativo en Iberoamérica: <http://www.iimv.org/estudios/ estudio-sobre-gobierno-corporativo-en-iberoamerica/> 24 Idem. 25 The Jurisprudence of the Delaware Courts has illustrated this point as the controlling shareholder being an "800 pound gorilla whose urgent hunger for the rest of the bananas is likely to frighten less powerful primates like putatively independent directors who might well have been hand-picked by the gorilla". In re Pure Resources Inc., Shareholder Litigation, 808 A.  175-79 (Del. 1986). Under the Revlon standard, the Delaware Chancery Court has stated that, as a response to a hostile takeover, the director's fiduciary duty involves transferring the companies control to the bidder that offers the best conditions. FaMuLari, Derek J "The Revlon Doctrine -The Fiduciary Duties of Directors when Targets of Corporate Takeovers and Mergers", The American Bar Association (n.d), : <https://www.americanbar.org/content/ dam/aba/administrative/young_lawyers/publications/101/fiduciary_duties_ of_directors_coporate_takeover.authcheckdam.pdf> The author states there, that "The Court held that when the board decided to "sell the company," its duty "changed from the preservation of Revlon as a corporate entity to the maximization of the company's value at a sale for the stockholders benefit." Ultimately in the centre of a takeover operation. The right time has come 32 for the Pacific Alliance to undertake an agreement between its members 33 in order to have a modern day harmonized takeover regulation. This would help to regulate (or self-regulate 34 ) the market for corporate control in the region as well as enhance cross-border transactions between its member countries. C) The "MILA": A Pacific Alliance milestone lated_Agency_Problems_What_are_the_Implications_for_the_EC_Take-over_Directive>. The author here states that "The non-frustration rule is established to serve the former purpose-to set management aside when hostile bids are imminent so that shareholders have the final say on the merit of the bids".
32 Financial integration is one of the key pillars of the Pacific Alliance.
In the Paracas Summit of 2015, the Minister Council for Financial Integration was created in order to promote financial and economic integration in the region. In 2017, a Public-Private Work Group was created by the XII Summit of Finance Ministers. Its task is to enhance financial integration between member countries by harmonizing taxation and regulatory standards. Many milestones have been reached, such as the creation of a passport for Investment Funds, whereby the units of such funds can be negotiated in any member country, and the harmonization of the tax treatment of interests and capital gains for pension funds that operate in the region. Alianza del Pacífico, Integración financiera, June 6 of 2017, <https://alianzapacifico.net/integracion-financiera/> 33 Díaz-ceDieL, Santiago, "La Alianza The need and convenience of harmonizing cross-border...

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The Latin American Integrated Market (MILA) is the result of the agreement reached in 2009, by the Stock Exchanges and Depositories of Chile, Colombia in Perú in order to have a public market regional integrated operation. In June 2014, Mexico, in the midst of the Pacific Alliance negotiation, joined this market having the first transaction made in December 2014 35 .
Significant advantages have arisen, both for investors as well as for issuers and listed companies, from the creation of MILA. While for issuers MILA provides a wider base of investors, more alternatives to raise capital, the opportunity to trade in international platforms and the chance to be listed on all member countries exchanges, for investors MILA provides the opportunity to choose investment alternatives within more financial instruments hence diversifying portfolios without the need of opening foreign brokerage accounts 36 . Official data 37 shows that MILA's market cap supersedes that of the sum of its member countries demonstrating the power and value that synergy brings.
Although for some academics MILA has not evolved at its full potential and key aspects of its integration, such as harmonized tax regimes, monetary policies (such as exchange and interest rates) are still pending 38 , the existence of this integrated market has had a significant impact in multiple sectors, including that of 35  Latin-American countries have very similar takeover regulations, most of them lacking cross-border regimes. This section will analyse the current deal structures in the four current member countries of the Pacific Alliance and the way a new regulation on cross-border takeovers, based on regimes such as that of the UK and the US, could be of great value. Colombia has a system in which "takeovers of listed companies can be made only through public tender offers ("OPAs")" 41 but control over a listed company may also be acquired through a public sale offering in the means of a bid or auction, known as "martillo". Given that ownership structure of listed companies in The need and convenience of harmonizing cross-border...

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Colombia is highly concentrated 42 , the market for corporate control in the country is based Pre-Arranged Transactions 43 rather than in hostile takeovers. Although there are no restrictions for foreign companies to bid or make tender offers, there are also no provisions that facilitate or encourage these transactions, hence resulting in a difficult environment for the development of crossborder market for corporate control.
Chile has a system in which the acquisition of control of publicly traded companies, although in principle having to be made by a tender offer for the acquisition of shares, can have multiple exceptions 44 . Ever since the famous Chispas 45 case, not only did corporate governance provisions changed in the country but also the Chilean market regulation for corporate control became highly based in equality considerations. From that point on, tender offer considerations have to be addressed "to all the sharehol- The need and convenience of harmonizing cross-border... Juan Esteban Sanín 612 ders of the corporation or to all the shareholders of a given series of the corporation, and when subscriptions exceed the shares offered to be acquired, the offeror must purchase the shares pro rata to the subscriptions of each accepting shareholder" 46 . Likewise, no internal legal provisions facilitate or encourage cross-border corporate control transactions.
Peru´s takeover regulation is based on the principles of equality, disclosure and the guarantee of access to relevant information 47 . Acquisition on any rights (including shares) of a substantial 48 percentage of the target company, that enables a person or financial group (regardless of its nationality) to gain its control must be preceded by a public offer of acquisition (OPA).
México´s internal regulation "allows for friendly and hostile takeovers to take place" 49 . In the case of a hostile takeover, the board of directors cannot deploy any defensive measures and must maintain its neutrality during the acquisition, thus being only able to give its opinion on the fairness of the offered price 50 . 46 carey, Jaime and uGarte, Jorge, "Mergers and Acquisitions in Chile: Approaching the Controlling Shareholder", Whos Who Legal, February 2014, : <https://www.carey.cl/download/getting_the_deal_through/ whoswholegal-mergers-and-acquisitions-in-chile_jaime-carey_jorge-ugar-te_2.pdf> 47 "Peru Takeover Guide", International Bar Association (IBA), Takeovers create new wealth 51 ; they do not simply reshuffle existing wealth 52 among the relevant players 53 . This wealth is primarily allocated in the target company shareholders 54 , but also in society at large 55 . If the premium paid out by bidders to gain control of the target, as a result of what is known as the "winners curse" 56 , is more "than what the acquiring shareholders lose, net new value is created 57 ". This position, however, is not shared by all academics 58 . 51 Manne, Henry G., "Mergers and the Market for Corporate Control".  Economics, núm. 20, 1988, pp. 293 -315. The authors examined the validity of the previously referred to hypothesis from a different perspective than that of an antitakeover defence. Their conclusions were that the Tobin q, an index that measures the market value of "all of the company´s securities divided by the replacement costs of all assets", rises as ownership stakes rise. The positive relationship "was not uniform in that it applied to ownership percentages between 0 and 5% as well as The need and convenience of harmonizing cross-border...

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Given the fact that most Latin American companies, even if public 62 , are family owned or controlled 63 , agency problems between shareholders and directors, due to conflicts of interest, are a recurring issue. Also, the fact that corporate ownership and control in Latin Americas´ public companies is highly concentrated 64 interferes with policy measures aimed at solving these same agency problems. Although Latin American countries have, to the most extent, legislation regulating directors' fiduciary duties, the duty of loyalty has not been so developed as in Anglo-American countries 65 . Given this, the "wrongful profiting to those above 25% whereas a negative relationship applied for those between 5 and 25%". from position" 66 and "corporate opportunities" 67 doctrines have not yet had a wide enough application in Latin American jurisprudence.
Regarding takeovers, the target company board members have specific duties towards the company. These vary according to the different jurisdictions; while in the UK and Europe board members are bind by the "passivity" or "non frustration" rule, in the US, coupled with staggered boards 68 and other anti-takeover mechanisms 69 , board members are free to decline an offer 70 . 66 According to Hopt (Ut. Supra, at 13) this doctrine states that "directors are not allowed to use their position for their self-interest". This doctrine gets blurred when the definition of self-interest comes into play, due to the fact that directors, given their position, could widely be benefited in non-financial ways from third parties.
67 According to Hopt (Ut. Supra, at 11) this doctrine forbids directors to use, for themselves, "business opportunities that arise for the company". It is rooted "in the trust analogy for directors as fiduciaries of the company". 68 "A staggered board of directors, also known as a classified board, re- The need and convenience of harmonizing cross-border...

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Given that all of the Pacific Alliance member countries 71 are OECD member countries 72 or are in process of becoming one, the Pacific Alliance becomes a unique forum in order to implement and harmonize the OECD's existing corporate governance policies 73 in order to enhance cross-border takeover transactions without risking or jeopardizing shareholders rights. These policies include, among others, standards governing the acquisition of corporate control and the use of anti-takeover devices 74 . 71 The member countries of the Pacific Alliance, as of today, are Colombia, Perú, Chile and México.
72 Chile and México have long ago been OECD member countries. After complying with all of its standards, Colombia was invited to become the 37 th member of the OECD. Peru is currently undertaking the path to become an OECD member country by implementing the OECD's recommendations and policy standards by means of enacting legislative decrees and by joining two major OECD Conventions; the Anti-Bribery Convention and the multilateral Convention of Mutual Administrative Assistance in Tax Matters. "A mutually beneficial relationship", OECD, May 28 of 2018, <http://www.oecd.org/ latin-america/countries/peru/>. 73 "G20/OECD Principles of Corporate Governance", OECD Publishing, 2015, <https://www.oecd-ilibrary.org/docserver/9789264236882-en.pdf?expires=1540383152&id=id&accname=gue st&checksum=7B019A7EAD1B4F02999490C71B5E764F>. 74 Ibidem, The OECD sates that "rules and procedures governing the acquisition of corporate control (…) should be clearly articulates and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions (…). Anti-takeover devices should not be used to shield management and the board from accountability". V. Cross border takeover operations within non harmonized legal regimes; the U.S., E.U. and U.K. experience Europe and the US, having converged most of the corporate governance standards 75 that are applicable to transnational transactions, have not been able to do so with takeover regulation 76 . They have "adopted strongly dissimilar laws governing the process and substance of hostile tender offers, and their respective paths seem to be diverging rather than converging 77 ". Due to historical, political and traditional reasons 78 , it is quite unlikely that these regimes will ever be harmonized.
Whenever conceiving cross-border takeover regimes, legislators and policymakers usually come across a Hobson 79 choice; "weak regulation increases the risk, and strong regulation the 75 Rev., n° 34, 2014, p. 211. According to the author "the SEC regulates in a manner wholly different than the nation´s current takeover regulator, the Delaware courts. The SEC promulgates and enforces a rule-based takeover code, whereas Delaware regulates by court decisions (…)" and "decisions of the Delaware courts, including Singer, Unocal, and Revlon were arguably crafted in response to SEC pressure or the threat of SEC intervention". 83  The need and convenience of harmonizing cross-border... Juan Esteban Sanín 620 rules" 85 . These proposals have had a very critical response from the Company Law Subcommittee of the City of London Law Society 86 .
The greatest achievement regarding harmonization of takeover regimes was achieved with the enactment of the European Takeover Directive 87 . This granted the same protection and opportunities to all shareholders in European countries, as well as the "same expectation of success" for bidders that wished to enter the EU territory through a takeover acquisition 88 . The key pillars of the Directive, i.e., regulating the price of the compulsory tender offer, board neutrality and the breakthrough rule 89 provide 85 Greene, Edward F., curran, Andrew and cHriStMan, David A., "Toward a Cohesive International Approach to Cross-Border Takeover Regulations", U. Miami Law Review, n. 51, 1997, pp. 823-857. Such proposals include the 1990´s SEC proposal for foreign bidders to make offers into the U.S. "based on the procedural rules and disclosure practices of the bidders home market". This was followed by the multi-jurisdictional disclosure system that enables Canadian companies "to proceed in the United States under Canadian procedural and disclosure rules if less than 40% of the targets securities are held by U.S. shareholders". 86