Category: M&A

PetroFalcon subsidiary Vinccler Oil & Gas says it has scrapped plans to purchase a 30% stake in the license for the Cardon III natural gas block in the Gulf of Venezuela from Chevron. The company blames “tightening global capital markets and the uncertain oil and natural gas price environment” for the decision. As a result, the would-be buyer will get a reimbursement of around $5m plus expenses and interest, which would leave PetroFalcon with more than $33m in cash, it says. PetroFalcon will focus on its producing assets.

MMX Mineracao e Metalicos has obtained a $120m credit facility from Banco Itau to finance early payments on two acquisitions. The mining company controlled by Brazilian billionaire Eike Batista agreed to pre-pay $79m of the purchase of AVG Mineracao, originally due in installments in 2009 and 2010, and receive a 12% discount. It also has made a $43.2m installment due later this month on the acquisition of the Bom Sucesso iron ore deposit, and postpone the following installment by four months to November 2009. MMX agreed to buy AVG, which owns an iron ore mine in the state of Minas Gerais, for $224m in July 2007. It agreed to buy the Bom Sucesso deposit, also in Minas Gerais, for $193m in July 2008.

M&A activity should continue across all LatAm industries this year as lower valuations and distressed sellers provide bargains, but buyers will be circumspect. The majority of deals will be done with cash or stocks, continuing the trend started last year when credit evaporated. “There will be a very selective environment this year and buyers will be cautious when making acquisitions, but there will be activity,” says Bill Royan, vice president of relationship investing at Ontario Teachers’ Pension Plan. Among most active buyers will be private equity funds that have already raised cash. “There are many assets available at good prices,” says Jose Ulate, manager of Aureos Capital’s Emerge fund, which focuses on Central America. Emerge recently invested in an advertising company that operates in several CentAm countries. It is also eyeing technology and energy targets, says Ulate. And Aureos is not alone. “Private equity funds have raised significant amounts over the past few years . . . they are not jumping in, as it takes time for sellers to adjust to the new price/valuation realities, but they will always look for the low-hanging fruit and jump on a good opportunity,” says Christian Langaard, a partner at PE shop Euro-Latin Capital. Strategics are also seen active. “We are working with international oil and gas companies that are looking at Colombia, Brazil, Peru and even to a certain extent Argentina,” adds Langaard. “We also have numerous investors interested in biofuels in Colombia and Brazil. Biomass and other renewable energy projects in Brazil are also attracting attention,” Langaard says. Despite the financing challenges, 2008 was another bumper year for LatAm M&A volume.

Telefonica del Peru, a division of Spain’s Telefonica, says shareholders have approved a merger with Telefonica Moviles Peru, also owned by the Spanish company. The union is slated to be effective December 31. As part of the deal, TdP says it will absorb all of Telefonica Moviles’ shares. As a result, its market cap will increase to almost $933m from about $839m, according to the firm. Victor Miranda, an analyst with Pacific Credit Rating in Peru, says the move will make TdP the market leader in mobile communication, as Telefonica Moviles has a 60% share. The second largest player is Claro, with a market share of about 30%, says the analyst. Officials from Telefonica and its Peru subsidiaries were not available for comment.

Credit Suisse consumed the lion’s share of this year’s much smaller investment banking fee pool, aided by a solid year for M&A. The shop bagged $225.9m from in the year to December 18, or 17.8% of the market, from a combination of M&A, ECM, DCM and loans revenue, Dealogic data reveals. This compares to $398.1m (16.1%) for Credit Suisse LatAm investment banking in 2007, when the LatAm fee pool was almost 50% bigger. The Swiss shop finishes well ahead of second placed UBS ($131m, 10.3%) and third placed Citi ($115.9m, 9.1%) and benefits from a relative windfall in M&A. Credit Suisse made $102.4m from M&A this year, 20% of the market and far better than second placed Citi ($66.7m, 13%) and UBS in third ($57.6m, 11.3%), Dealogic numbers show. Credit Suisse almost doubled its M&A revenue year-on-year, from $56.9m (11.3%) in 2007. Overall, the LatAm fee pool for M&A, ECM, DCM and loans has contracted to $1.269bn, from $2.473bn the year before, according to Dealogic. This is a far cry from the bullish expectations of some investment bankers at the start of the year, particularly those that rapidly created oversized Brazil operations. The one lucrative business this year was M&A, where the fee pool expanded a slim 1.2%, while everywhere else shrank significantly. Bankers are braced for a tough 2009 as the global financial crisis continues. M&A looks relatively positive in terms of pipeline, while the outlook for DCM, ECM and structured finance is bleak. Local markets should continue to tick over in the bigger markets. The only potential competitive bright spot is the fact that several institutions will likely scale back their regional investment banking presence or withdraw completely.

S&P says it is keeping Grupo Bimbo’s ratings on credit watch negative, following the company’s proposed $2.3bn acquisition of the US fresh bakery business of Weston Foods from Dunedin Holdings, first reported by LatinFinance December 4. The ratings were originally placed on CreditWatch with negative implications after the company’s announcement of the possible acquisition. “The downgrade will reflect Bimbo’s increased leverage and tighter liquidity because the transaction will be debt financed,” says S&P credit analyst Enrique Gomez Tagle. “Once the transaction closes, we will remove the ratings on Bimbo from CreditWatch and lower the global and national scale corporate credit ratings to BBB from BBB+ and mxAA+ from mxAAA, respectively,” the analyst adds.

Brazil’s AleSat has purchased 327 service stations in Brazil from Repsol YPF for BRL130m, according to a spokesman. Bradesco was AleSat’s financial advisor. With this acquisition, AleSat says it enters the Rio Grande do Sul market, where Repsol already had 20 stations, and that it expects to increase the number to 80 by 2012. During the same period, Ale expects to increase the number of stations to 220 from 120 in Sao Paulo and to 140 from 80 in Rio. By 2010, all Repsol stations will be renamed Ale, the company says.

Kinross Gold says it has completed the acquisition of a 40% interest in Minera Santa Rosa from subsidiaries of Anglo American for $140m in cash. It is buying the other 60% of the Chilean miner for 5.6m of its own common shares plus a cash payment of about $40m from Teck Cominco. In the deal with Teck, Kinross will also pay a 1.75% net smelter returns royalty on 60% of future production, payable when the gold price is $760 per ounce or more. The deal with Teck is expected to close before the end of the year. Morgan Stanley and Scotia Capital advised Kinross.

Barclays is heard to be on the lookout for a Brazil-based M&A banker, according to Sao Paulo-based executives. Barclays’ primary focus in the region has been debt markets. But with Lehman Brothers, the UK bank has acquired investment banking capabilities in the region that include M&A. Barclays’ Brazil office today has representatives for Barclays Capital (Barcap), which focuses on debt trading, derivatives, and some bond issuance, and Barclays Global Investors, the asset management arm. Barclays says it employs some 90 people in Sao Paulo. Most investment banks with regional M&A practices tend to have at least one senior banker with a Brazil focus, given the country’s size and its cultural uniqueness. This would be one way for Barclays to enter more value added business lines within investment banking and allow it to parlay M&A expertise into financing mandates with loans and bonds, where Barclays already has a franchise. Senior Barcap executives decline to comment on the initiative.

Mexican bread and confectionary maker Grupo Bimbo has secured some $2.3bn in loans from a group of 6 banks to pay for its acquisition of Weston’s US bread assets. The company is understood to be seeking to raise some two thirds of the longer-dated portions of the financing in pesos, and has accordingly tapped a lending group that has peso-lending capabilities, say people familiar with the process. The deal has multiple tranches, including a $600m 1-year bridge loan heard starting at around Libor plus 175bp. In the longer-dated tranches, Bimbo is looking at raising $900m worth of 3-year funds at Libor or TIIE plus 250bp, and $800m worth of 5-year funds at Libor or TIIE plus 300bp. Bank of America, BBVA Bancomer, Banamex Citi, ING, HSBC and Santander have agreed to equal size tickets on the deal, and will look to syndicate the loan in early 2009, says an executive involved in the process. Syndicating a large peso-denominated loan may prove to be a challenge not only because of tight liquidity conditions, but because the last large syndication in this market, a MXP37bn project loan for Farac, left some lenders holding larger than expected tickets for longer than expected time periods. The deal strained the limits local currency lending and soured relations between some participants, the deal’s leads and the borrower. Still, scoring a sizable financing package, part of which is to be denominated in pesos, is a notable feat for Bimbo in such a stringent environment. It shows that large M&A deals with a compelling story and strong banking relationships are still feasible in today’s tough market.