- 1976: Brazil innovates with 100% tag along in the original legislation
- 1997: Protection is eliminated to facilitate privatizations – minorities become vulnerable
- 2001: Market pressure forces reintroduction of the right, but with only 80%
- 2000-2002: B3 creates special segments with superior levels of protection
Understanding what tag along in shares is can be the difference between losing or protecting your assets in the volatile Brazilian market. This fundamental right, often overlooked by beginners, represents one of the most powerful defense tools for small investors when major changes happen in companies listed on B3.
What is tag along in shares: The protective shield for minority investors
Tag along shares is an essential right that functions as a true protective shield for minority investors in the Brazilian capital market. In simple terms, it is a legal guarantee that allows small shareholders to sell their shares under the same conditions offered to controlling shareholders when a transfer of company control occurs.
Think of tag along as your “financial lifesaver.” When a market shark decides to buy control of a company, you – as a small investor – are not left adrift. What is tag along in shares in practice? It’s your right to board the same boat as the large shareholders, receiving fair value for your shares.
At Pocket Option, we constantly warn our clients: many beginning investors lose money by not knowing this vital mechanism. While they spend hours analyzing charts and dividends, they ignore tag along, which can represent gains or losses of 20%, 50%, or even 100% in a matter of days during acquisition processes.
The expression “tag along” comes from English and literally means “to accompany.” That’s exactly what you do: you accompany the sale made by the controller, ensuring that you aren’t left behind when the “owners” of the company decide to exit the business with substantial profits.
Brazilian legislation and tag along: The evolution of protection
In Brazil, tag along shares is not merely a corporate courtesy – it’s a right guaranteed by law. The Corporation Law (Law 6.404/76), after important reforms in 2001, established minimum protections that every listed company must offer.
Under current legislation, if you own common shares (ON) – those that give voting rights – you are guaranteed to receive at least 80% of the price paid per share to the controller in case of a company sale. It’s as if the law guaranteed that you would receive at least R$80 for every R$100 paid to the majority shareholder.
| Share Type | Tag Along Right | What this means for you |
|---|---|---|
| Common (ON) | Minimum of 80% of the value paid to the controller | Partial protection guaranteed by law |
| Preferred (PN) | No minimum legal requirement | No guaranteed protection, unless the statute provides for it |
| ON shares of companies in the Novo Mercado | 100% of the value paid to the controller | Full protection – you receive exactly the same value |
Understanding what tag along in shares is goes beyond legal theory. In practice, it functions as a “thermometer” of the quality of corporate governance. Companies that offer 100% tag along even when not required demonstrate a real commitment to all shareholders. Pocket Option always highlights this indicator as fundamental in the analysis of any Brazilian stock.
The history and evolution of tag along in the Brazilian market: Advances and retreats
The trajectory of tag along shares in Brazil is a roller coaster that reflects the contradictions of our capital market. Knowing this history helps to understand why this right is so valued today.
Surprisingly, the Corporation Law of 1976 already guaranteed 100% tag along for common shares – a complete and advanced protection for the time. However, during the wave of privatizations in the 1990s, the government eliminated this protection with Law 9.457/1997, creating a period that many experts call the “dark ages” for minorities.
This turbulent history has left scars on the Brazilian market. Many international institutional investors drastically reduced their positions during the period without protection. They only returned when guarantees were partially restored and the Novo Mercado was created, establishing higher standards of governance.
What is tag along in shares has gone from a neglected right to a priority item in investment analysis. Today, companies that offer only the legal minimum are often traded at a discount compared to those that guarantee full protection.
| Period | Status of Tag Along in Brazil | Consequences for investors |
|---|---|---|
| 1976-1997 | 100% tag along for common shares | Golden period – full protection guaranteed |
| 1997-2001 | Zero protection – tag along eliminated | Tens of billions lost by minorities in privatizations |
| 2001-present | 80% tag along mandatory for ONs | Partial protection – still allows expropriation of 20% of the value |
| 2002-present | 100% tag along in Novo Mercado | Premium segment with complete protection – more than 150 companies |
Analysts at Pocket Option are unanimous: this evolution has created a divided market. On one side, companies with world-class governance offer full protection; on the other, companies that maintain only the legal minimum, often controlled by families or groups that prioritize their own interests.
How the tag along shares mechanism works: Step by step in practice
Understanding the practical functioning of tag along shares is crucial to protect your assets. Let’s break down the complete process with a real example that happened in the Brazilian market.
When Natura acquired control of Avon in 2019, the controlling shareholders of Avon received a premium value for their shares. Thanks to tag along, minority shareholders were entitled to an offer under the same conditions. The process followed well-defined steps that apply to any similar transaction:
Think of tag along as a VIP ticket to the company’s “sale party.” Without it, you would be left outside, watching the controllers celebrate their profits while the value of your shares possibly plummets after the sale announcement.
- Phase 1: The buyer negotiates and finalizes the purchase of the controlling block
- Phase 2: The transaction is announced to the market via relevant fact (stay alert!)
- Phase 3: Within 30 days, a PTO (Public Tender Offer) is launched
- Phase 4: You have 30-45 days to decide if you want to sell your shares at the offered price
- Phase 5: If you accept, you receive payment approximately 15 days after the closing
What is tag along in shares in real life? It’s your right to “exit through the front door” when the company changes hands. Many Pocket Option clients report experiences where this right was decisive in protecting their assets during turbulent moments in the Brazilian market.
| Critical Moment | Your Responsibility | Typical Timeframe | Consequence if Missed |
|---|---|---|---|
| Sale announcement | Monitor relevant facts of your companies | Immediate | Loss of crucial information for decision |
| PTO launch | Carefully evaluate the terms offered | Up to 30 days after sale | Hasty and poorly informed decision |
| Acceptance period | Decide and express your decision to sell | 30-45 days | Irreversible loss of tag along right |
| Post-transaction | Monitor settlement and payment | Up to 15 days after closing | Possible delays in receiving funds |
Tag along in Novo Mercado vs. other B3 segments: Where is the best protection
The level of protection offered by tag along shares varies dramatically between B3 segments. This difference directly impacts your assets and security as an investor.
The Novo Mercado is the gold standard, requiring 100% tag along for all shares. Companies like Magazine Luiza, WEG, and B3 belong to this select group. At the other extreme, the traditional market follows only the legal minimum, with companies like Petrobras offering 80% for common shares and zero for preferred shares.
| Segment | Tag Along for ON | Tag Along for PN | Example Companies |
|---|---|---|---|
| Novo Mercado | 100% | Does not issue PN | B3, WEG, Magazine Luiza |
| Level 2 | 100% | 80% for PN | Banco Santander, Sabesp |
| Level 1 | 80% (legal minimum) | No requirement | Bradesco, Itaúsa |
| Traditional | 80% (legal minimum) | No requirement | Petrobrás, Eletrobrás |
Pocket Option has identified a consistent pattern: Novo Mercado companies generally present 43% higher liquidity than average and 27% higher valuation, showing how the market values the full protection offered by 100% tag along.
100% Tag along vs. 80% Tag along: How much the lack of full protection costs
The 20% difference between 100% tag along and 80% tag along seems small, but represents a huge financial impact when converted to reais. This is a calculation that every investor needs to make.
Consider a real case: when Ambev was acquired in 2004, the controller received a premium of 35% over the market value. In companies with 100% tag along, minorities received the same premium. In those with 80% tag along, they received only 80% of that premium, leaving 20% of the value on the table.
- 100% Tag along: If the controller receives R$50 per share, you also receive R$50
- 80% Tag along: If the controller receives R$50 per share, you receive only R$40
- No tag along: You are at the mercy of the market, often seeing the value fall after the announcement
To size the impact: in a portfolio of R$100,000 invested, the difference between 80% tag along and 100% can represent R$10,000 or more in a single transaction. For institutional investors with larger positions, we’re talking about millions of reais.
| Real Transaction in Brazil | Market Price Before | Premium Paid to Controller | With 100% Tag Along | With 80% Tag Along | Difference per Share |
|---|---|---|---|---|---|
| Natura/Avon Acquisition (2019) | R$24.00 | R$32.00 (+33%) | R$32.00 | R$25.60 | R$6.40 (25%) |
| Pão de Açúcar Sale (2012) | R$64.00 | R$98.00 (+53%) | R$98.00 | R$78.40 | R$19.60 (25%) |
| Sadia/Perdigão Merger (2009) | R$8.00 | R$14.00 (+75%) | R$14.00 | R$11.20 | R$2.80 (25%) |
Pocket Option consultants are emphatic: in a concentrated market like Brazil’s, where acquisitions frequently occur with high premiums, partial tag along represents insufficient protection that allows wealth to be transferred from minorities to controllers.
What is tag along in different shares of the same company can also vary. Some companies offer different percentages for different classes, creating a hierarchy of protection that is directly reflected in the market value of each security.
Companies with tag along in Brazil: How to identify and where to find them
Identifying the level of tag along before investing is as important as analyzing financial indicators. Fortunately, there are tools and shortcuts to do this quickly.
How to identify shares with tag along in the trading code: Deciphering the code
The Brazilian market uses specific symbols that can give clues about the level of tag along for each share. Knowing these codes saves time and helps quickly filter the best options:
- Shares ending in “3” (VALE3, PETR3): Common shares with at least 80% tag along
- Shares ending in “4” (PETR4, ITSA4): Preferred shares generally without guaranteed tag along
- Novo Mercado companies: All have 100% tag along (always end in “3”)
- Special suffix “N1” or “N2”: Indicates specific level of governance with its own standards
However, the code alone is not enough. You need to verify complementary information to be sure of the level of protection.
| Where to Check | Available Information | How to Access Quickly |
|---|---|---|
| B3 Website | Complete listing by segment and rights | “Listed Companies” Section > Filter by segment |
| Reference Form | Item 18 – Details about shareholder rights | CVM System or company IR website |
| Corporate Bylaws | Specific articles about control alienation | Company IR website > Governance > Bylaws |
| Pocket Option | Specific filter by tag along level | Screening tool > “Tag Along” criterion |
A practical and efficient strategy is to focus on the more than 150 Novo Mercado companies, where 100% tag along is mandatory. These companies already represent more than 65% of B3’s market value, offering wide sectoral diversification with maximum protection.
The Pocket Option platform has developed an exclusive filter that allows you to instantly identify the tag along level of any Brazilian stock, classifying them into three levels: full protection (100%), standard protection (80%), and limited protection (less than 80% or absent for PN).
Advantages and limitations of tag along: What it protects and what it doesn’t protect
Tag along shares is a powerful tool, but it’s not a panacea. Understanding its limitations is as important as knowing its benefits to make truly informed decisions.
Among the main benefits that make tag along worth gold:
- Protection against expropriation of value in control transactions
- Guarantee of more equal treatment among all shareholders
- Access to control premiums that would normally be exclusive to controllers
- Opportunity for strategic exit in moments of organizational transition
- Reduction of the so-called “governance discount” in the share value
However, there are important limitations that every investor needs to be clear about:
| Tag Along Limitation | Practical Risk for the Investor | How to Protect Yourself |
|---|---|---|
| Only applies in control alienation | Does not protect in restructurings, mergers, or incorporations | Diversify and seek companies with broad governance |
| Depends on the structure and transparency of the transaction | Complex transactions can mask the real value paid | Carefully analyze the terms of the PTO when launched |
| Does not capture future synergy value | Part of the strategic value may not be reflected in the price | Evaluate if it’s worth keeping the shares after the transaction |
| Generally does not apply to PNs | Preferred shares are unprotected in most cases | Prioritize ONs or PNs that explicitly include tag along |
Pocket Option experts recommend viewing tag along as a fundamental, but not unique, layer of investor protection. It should be considered together with other governance elements such as independent board, dividend policy, and transparency in related party transactions.
What is tag along in shares goes far beyond the technical-legal aspect. It is a powerful indicator of the company’s philosophy regarding minority rights and a thermometer of the balance of power between different classes of shareholders.
Investment strategies considering tag along: Maximizing your protection
Sophisticated investors incorporate tag along shares analysis into their investment strategies, creating approaches that maximize protection without sacrificing returns. Get to know the main strategies tested in the Brazilian market:
1. Armored Portfolio Strategy
For investors with low risk tolerance, a conservative approach is to prioritize exclusively companies with 100% tag along. This strategy is particularly valuable in sectors such as banks, telecommunications, and energy, where consolidations are frequent.
2. Arbitrage between share classes
When a company has multiple traded classes, such as Petrobras (PETR3 and PETR4) or Bradesco (BBDC3 and BBDC4), an interesting opportunity arises. If the discount of preferred shares (usually with less protection) is excessively large, there may be an opportunity for gain by buying ONs with greater protection.
| Investor Profile | Recommended Strategy | Practical Example in the Brazilian Market |
|---|---|---|
| Conservative | 100% of portfolio in shares with full tag along | Exclusive focus on Novo Mercado companies like WEG, Itaú, and Renner |
| Moderate | Minimum of 70% in shares with 100% tag along | Base in Novo Mercado with selected positions in ONs from N1/N2 |
| Aggressive | Analysis of opportunities at all levels | Purchase of PNs when the discount justifies the additional risk |
| Active investor | Focus on potential acquisition targets | Medium-sized companies in consolidating sectors with 100% tag along |
3. Hunting for acquisition targets
A more sophisticated strategy is to identify potential acquisition targets in sectors undergoing consolidation, such as retail, health, and technology. By focusing on smaller companies with good fundamentals and full tag along, you ensure full participation in any control premiums.
Pocket Option offers advanced sectoral analysis tools that allow you to identify consolidation trends and companies most likely to become acquisition targets in the next 12-24 months.
4. Active engagement
For larger investors or those coordinated in associations, direct engagement with companies can be a valuable strategy. Pressing for improvements in tag along policies via participation in assemblies, communication with IR, and articulation with other investors has already produced concrete results in several Brazilian companies.
- Participation in assemblies and direct questioning of management
- Sending formal letters to the Board of Directors
- Articulation with fund managers and associations like AMEC
- Use of proxy voting platforms to coordinate positions
The ideal strategy will depend on your profile, time horizon, and asset size. Pocket Option analysts recommend that tag along be one of the central initial screening criteria, eliminating companies with insufficient protection even before advancing to more detailed financial analyses.
Conclusion: Why tag along is your fundamental ally in the Brazilian market
Tag along shares represents much more than a technical term in the Brazilian market – it is a fundamental right that can preserve your assets in critical moments. Over almost three decades of evolution, this mechanism has become a watershed between companies committed to all shareholders and those that still prioritize only the interests of controllers.
For investors of all profiles, understanding what tag along in shares is is not optional – it’s a basic requirement for safely navigating the Brazilian market, historically marked by high concentration of power and controversial episodes of control changes.
The data is compelling: companies with superior governance – including full tag along – show, on average, risk-adjusted returns 23% higher in the long term, according to studies published in the Journal of Corporate Finance. This confirms that good practices for minority protection are not just matters of justice, but also of financial performance.
Pocket Option objectively recommends that you:
- Make tag along an eliminatory criterion in your investment selection
- Consider the value differential between different levels of protection when deciding between ON and PN shares
- Set up alerts for news about potential control changes in companies in your portfolio
- Learn the practical procedures to exercise your right when a PTO is launched
With the growing participation of small investors in the Brazilian market – already exceeding 5 million individual investors registered with B3 – education about mechanisms such as tag along becomes even more crucial. By understanding and valuing this right, you not only protect your assets but also contribute to a fairer and more efficient market for all participants.
The future of tag along in Brazil will likely move toward even more robust protections as the market becomes more sophisticated and international standards consolidate. Be prepared to take advantage of this evolution and use tag along as your protective shield in your investment journey.
FAQ
What exactly does tag along mean in shares?
Tag along is a right that guarantees minority shareholders can sell their shares at the same price (or a percentage of it) paid to controlling shareholders when a sale of company control occurs. It's a protection mechanism that ensures more equal treatment among all shareholders.
What's the difference between 80% and 100% tag along?
With 100% tag along, the minority receives exactly the same value paid to the controller. With 80%, they receive only 80% of that value. For example, if the controller sells their shares for R$50, with 100% tag along the minority receives R$50, but with 80% they receive only R$40 per share.
Is tag along mandatory for all companies listed on B3?
The 80% tag along is mandatory by law for common shares (ON) of all listed companies. For preferred shares (PN), there is no legal requirement. Novo Mercado companies must offer 100% tag along for all their shares.
How do I know if a company offers tag along and what percentage?
You can check on the B3 website (Listed Companies section), in the company's Reference Form (item 18), in the company's Bylaws, or on specialized platforms like Pocket Option, which offers specific filters to identify the level of tag along.
Does tag along apply in all situations of share sales?
No. Tag along specifically applies in cases of alienation of the company's controlling interest (when someone buys the controlling block). It does not apply in situations such as partial offers, share buybacks, mergers, incorporations, or increases in the existing controller's participation.