Category: M&A

Brazilian developer Cyrela has canceled an agreement to buy competitor Agra Empreendimentos Imobiliarios for about BRL1.54bn, the companies say. The two cite an “incompatibility of the companies’ commitments with their respective partners regarding the exclusivity of operations with those partners in certain regions of the country,” as the reason for halting the deal that was announced in June. Instead, the two developers have entered into a new accord, in which Cyrela will buy certain Agra development projects totaling BRL120m. In a research report, Itau finds that the news is negative for both companies, particularly Agra, whose valuation was sustained by the possibility of the deal.

Millicom International Cellular, a Luxemburg based developer and operator of cellular telephone systems, has signed a $200m bridge to help fund its acquisition of El Salvador-based telecom Amnet. The bridge via ABN AMRO and Standard Bank is expected to be refinanced within a year, according to Milbank, Tweed, principal counsel on the facility. Bankers on the deal decline to state pricing. Millicom agreed to buy Amnet for $510m in the summer. Amnet provides of broadband and cable television services in Costa Rica, Honduras and El Salvador, fixed telephony in El Salvador and Honduras, and corporate data services in the those countries as well as Guatemala and Nicaragua. Gibson, Dunn & Crutcher acted as New York counsel to Millicom in the financing and Bingham McCutchen advised Millicom on the acquisition.

Falling equity and commodity markets have already taken a toll on mining sector M&A in LatAm and more deals are expected to be cancelled or postponed. The latest miner to give up on acquisition plans is British Columbia-based Coro Mining Corp. which says it will not exercise an option to acquire the Cerro Negro mine in Chile for $40m. Even though it has financing in place with Dundee Global Resources, current conditions in the credit markets make refinancing of the debt facility uncertain over a 12-24-month timeframe. Dundee had agreed to undertake two private placements totaling an aggregate of $15m and provide Coro with $25m in debt. Cerro also blames copper prices – which closed Friday at $2.70/lb from almost $3.40 in early September – as another reason to abandon the deal. Mexico’s Minera Autlan also recently scrapped a sale, after getting more than 20 bids that fell below expectations in a process advised by Lehman. Peru’s Buenaventura, which has a market cap of $5.4bn, is also postponing acquisitions it was considering, according to CFO Carlos Galvez. Equities analyst Christopher Ecclestone of Hallgarten says mining companies are putting off possible sales as valuations drop in tandem with commodity prices. Potential buyers are doing the same, even when they are able to use cash to make acquisitions. “These companies are wondering if this is the last time they will have so much cash at hand,” he says. According to Ecclestone, majors are likely to purchase large, distressed projects, but smaller projects will be of no interest.

So far this year there have been 153 M&A deals in the mining industry in LatAm and the Caribbean, for a total value of $17.5bn, making the mining industry not only the most active in terms of deals, but also by deal value, according to Dealogic. During the corresponding period of 2007, the mining industry saw 136 deals for a total value of $5.3bn. In 2007, the finance sector won first place in terms of deal value, with 79 deals worth a total of $8.7bn, but was in third place in number of deals made. This year, finance is running in second place in deal value, having made 64 deals worth a total of almost $17bn. It is in third place in number of deals made.

LatAm targeted M&A activity for the first 9 months of 2008 increased 32% compared with the same period in 2007, reaching $89.9bn, Dealogic data reveals. Brazil alone saw M&A volume jump 103% to $62.9bn during the same period. Spain-based buyers’ investment in the region increased 381% to $8.3bn, making them the highest spenders. The largest deal the Spanish inked in the region is La Caixa’s acquisition of a 20% stake in Mexico’s Grupo Financiero Inbursa for $2.2bn. The UK is in second place, having invested $5.3bn and the US is third with an investment of almost $5.3bn.

Brazilian targeted M&A volume jumped 103% to $62.9bn year-on-year in the first 9 months of 2008, Dealogic data shows. EM targeted M&A meanwhile fell 5% to $608.5bn in the same period, but rose as a proportion of total volume, accounting for 22% of global M&A from 17% in the corresponding 2007 period. China topped the list, followed by Russia and Brazil. The latter is much more vibrant for bankers than the developed markets. Global announced M&A volume reached $2.81trn through September 24, a 24% drop on comparative 2007 $3.69trn volume, Dealogic data shows. Strategic M&A volume is down 11% globally but deal activity has risen 4%. Global buyout volume is 72% lower, while the number of deals has dropped off 25% year-on-year, the data tracker adds. Credit Suisse has bagged the lion’s share of LatAm M&A volume so far this year.

Mexico’s Grupo Ferrominero, which this week gave up on selling manganese miner Minera Autlan, likely received bids that fell well below its expectations, say M&A executives away from the company who have knowledge of the transaction. “The only way to explain [their decision to call off the sale] is to assume the bids were lower than what they wanted to sell at,” says one banker whose client considered bidding. Autlan has been on the block since at least Q1, and company executives have been actively engaged in the process throughout the past several months. Bids were due over the past two weeks, and a number of global players were heard expressing initial interest, including Vale, Citic, Eramet, Glencore, Tenaris and BHP Billiton. Prior to the auction’s termination Tuesday, Autlan’s market cap had neared around $2bn, leading some to presume it could sell for a 15%-30% premium over that. Bankers backing bidders say the market cap did not accurately represent the true value of the company, since stock performance was influenced by M&A speculation and the moving price of manganese. Discounted future cashflows played a significant role in valuations, they add. Still, bids are presumed to have come in below $2bn, which likely led GFM to hold. Lehman advised Autlan.

New York-based inter-dealer broker GFI Group is making a debut in LatAm by acquiring a 49% stake in Buenos Aires-based Premium Securities for an undisclosed amount. The acquisition is expected to allow GFI to increase business in soft commodities and derivative markets. Chris Donat, associate director at Sandler O’Neill, describes the buy as a “small bolt-on acquisition that adds geographic exposure. While Premium has just 15 employees, GFI has 1,065 brokers in different regions. GFI has the option to acquire the remaining 51% of Premium over the next few years, but Donat says he does not believe GFI will make any significant near-term investment to expand in LatAm, given the global financial situation. A GFI spokesman meanwhile describes the purchase as long-term and not impacted by recent volatility. GFI’s second quarter results show that 53% of its revenue comes from Europe, 37% from North America and 9.9% from Asia/Pacific. It specialized in OTC derivatives and related securities.

Lazard has opened a new financial advisory office in Lima. The boutique M&A shop plucked Augusto Barreto from Citi’s Peru office in September to head the unit as a managing director. The new opening is part of Lazard’s move to expand in LatAm beyond Argentina, Uruguay, Chile and Panama. Large banks, most recently Deutsche Bank in July, have set up shop in Peru hoping to land a jumbo cross-border M&A transaction, as well as profit from one of the region’s fastest growing domestic markets. Boutiques have recently sprung up in LatAm to serve an increasing number of small and mid-size clients. They may find themselves in a more advantageous position, unburdened by larger institutions’ balance sheet troubles.

The cost of obtaining loans for capex, M&A and debt refinancing is rising substantially for LatAm corporates amid contamination from the raging US financial crisis. A protracted trend of shortening tenors and widening spreads has hit a new stride in the past two weeks, say bankers. This is expected to have the greatest impact on M&A financing, loans experts add. US and European banks are funding themselves at spreads over 3-month Libor of 100bp-150bp, while reduced liquidity for new deals is shoving margins for investment grade names wider. BBB rated LatAm corporates are today looking at a minimum spread of Libor plus 225bp-250bp for 5-year amortizing funds, say bankers. That is up from 175bp over Libor only a couple weeks ago, they add, while 3-month Libor jumped to 4.05% yesterday from an average of around 2.81% in the first half of September. Funding corporates at 7-year tenors is all but unthinkable nowadays, with even 5-year deals facing high resistance and demands for high spreads, note lenders. The 3-year point on the curve is likely to be the most common going forward, they add. In April, Mexico’s CFE, one of the region’s highest-rated credits, managed to price a $1.7bn 3-year facility at 40bp over Libor, though it had to downsize from $2bn. The LatAm bank market, for years one of EM’s most resilient financing sources, is swiftly heading the way of bonds and equity.