When and how should Mexican companies disclose information to the investing public? This question has both legal, operational and strategic considerations.
On the legal side, clearly a company needs to disclose if the information meets the materiality criteria as set out in the Mexican Securities Law. Specifically, companies need to disclose information when an event is equivalent to 5% of assets, liabilities or capital, and more than 3% of last year’s sales or if that is impossible to determine, “the company must consider if the event constitutes relevant information for investors to make an investment decision, so as to understand the real situation of the company or what may affect the value of the shares”. The company also needs to disclose all shareholders’ meetings, relevant corporate restructuring and M&A activity.
Strategically, most companies should aim to go beyond meeting their legal requirements when it comes to disclosure as by doing so they can build trust with their investors and analysts, and avoid surprises. In addition, prompt public disclosure can reduce the risk of inappropriate dealings by those in and out of the firm privy to the information, having to respond to inaccurate press leaks, and release insiders from black out trading periods. If the news is positive, then clearly the default should be to make it public.
Beyond their legal obligations, we recommend companies should disclose information to the public if there is a big gap between investors’ expectations for the company and the company’s latest information, and the company is about to go to a conference or road show. Without public disclosure, companies run the risk of favoring some investors over others when answering questions.
As a general rule, we recommend companies post on their website all updates to corporate presentations before setting out on the road show or the investor day. We also believe it’s good practice to announce when attending an investor conference.
In many cases, companies will face a dilemma on when to disclose new information. Should they wait for a final conclusion of the transaction or management change, or signing of the memorandum of understanding, or react to press reports in the case of leakage? In general, we recommend waiting until information is fully confirmed before releasing a press release, to avoid risk of announcing something and then having to retract. But once the information is confirmed, release should be immediate. In the event of press leaks that require a response, it’s usually best to say the company is always evaluating options to add shareholder value and will inform the market when and if there is news, and avoid entering into details. In some cases, a more proactive response will be necessary, especially if the news is negative.
In general, it makes sense to have a disciplined approach to disclosure, and always report in the same way and frequency recurring data (Same store sales, traffic, share buy backs, guidance). We also suggest sending out such information after the market has closed, and thus avoid traders being able to take advantage of the information ahead of longer-term investors.
Where to send the information? All relevant facts by law have to be sent to the BOLSA’s EMISNET and BIVA’s equivalent. In general, we suggest sending that same information out in a press release, in English and Spanish, and simultaneously posting on the website, email, and wire service – unless it is very technical (share buybacks) and of no market interest. Hiding information by reporting to EMISNET and BIVA and not putting out a general release is likely to backfire. Needless to say, it is important that the press release clearly communicates the information in the first paragraph and does not try and bury the facts in euphemisms and unclear language.
If the information is highly market sensitive, and hard to explain in a press release, we recommend a conference call, the day after the press release, preferably before the market opens. This would be relevant for M&A for example.
Below we post some links to relevant articles on the subject matter.
Title: Initial Public Offerings 2018 Second Edition
Author: Ricardo Maldonado, Patricio Trad & Manuel Echave, Mijares, Angoitia, Cortés y Fuentes, S.C
Date: 2018. Source: Global Legal Insights
Title: MD&A Trends and Uncertainties – What Should a Company Disclose?
Author: Eric A. DeJong, Stewart M. Landefeld & Chris Hall
Date: 02/04/2004. Source: Perkinscoie
Title: Communication Strategy for Stakeholder Engagement
Date: 12/03/2019. Source: SustaiNet
Title: Subsequent Events
Author: Jim Wilkinson
Date: 24/07/2013. Source: The Strategic CFO
Title: Additional Notes on Disclosures
Date: 24/07/2013. Source: Public Accounting Oversight Board
Miranda-IR Team – Ana Maria Ybarra, Damian Fraser, Marimar Torreblanca.