Brazilian Exchanges To Merge

by Mike Godfrey, Tax-News.com, Washington

28 March 2008

It has emerged that the São Paulo Stock Exchange (Bovespa), and the Bolsa de Mercadorias & Futuros (BM&F), Brazil's largest futures exchange, are to merge, creating the third largest publicly traded securities exchange globally, and the largest such entity in the Latin American region.

In a statement released following meetings on Tuesday, the two parties explained that:

"Further to the notice of Material Fact dated February 19, 2008, BOVESPA HOLDING S.A. (BOVH3) and BOLSA DE MERCADORIAS & FUTUROS-BM&F S.A. (BMEF3), hereby announce to shareholders and the market that, pursuant to decisions taken at meetings held on March 25, 2008, each of their Boards of Directors will submit to shareholders a proposal contemplating an integration of the activities of the two companies, which will be implemented according to a restructuring plan that would first require the organization of a new company, provisionally referred to as Nova Bolsa (New Exchange)."

They went on to add that:

"Under the proposed restructuring plan, New Exchange will be a public company, registered as such with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários), or CVM, whose shares will be listed to trade on the Novo Mercado."

"Upon approval of the transactions related to the restructuring plan, New Exchange will issue common shares to be allocated to the shareholders of BM&F and of Bovespa Holding, on the basis of 50% for each company. Additionally, the shareholders of Bovespa Holding will receive R$ 1.24 billion in cash."

"Furthermore, as proposed, the Board of Directors of New Exchange will consist of directors appointed by BM&F and Bovespa Holding in equal number, most of whom will be independent directors."

A Transition Committee will be established, they further revealed, which will consist of the chairmen of the boards of directors and the chief executive officers of both companies. This Committee will be in place through December 31st, 2008.

The Transition Committee will appoint the new Chairperson and CEO to the Board of Directors of New Exchange within 60 days after the approval of the transaction by each company’s shareholders’ meetings. Until those nominations, the current chairmen of the boards of BM&F and Bovespa Holding will jointly chair the board of directors of New Exchange, whereas the two principal officers of the two companies will act as joint chief executive officers.

Bovespa and BM&F went on to reveal that:

"Based on preliminary estimates, given the existing synergies, the combined organization resulting from the proposed restructuring plan can potentially save up to 25% of the combined operational expenses by 2010."

Assuming that shareholder and regulatory approval is forthcoming, the Nova Bolsa is expected to commence operations in late May 2008.

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