Category: M&A

The much anticipated wave of mergers in the Brazilian homebuilding space is in full swing as stocks of smaller and medium-sized companies continue to get hammered, creating bargain opportunities for cash-rich buyers. One potential deal in the making is the acquisition of Company, a high-end apartment developer in Sao Paulo, by Brascan Residential Properties, a Bovespa-listed entity 60% owned by Brookfield Asset Management, say people away from the talks. Nick Reade, chairman of Brascan Residential, declines to comment on potential targets, limiting his remarks to “We believe in the consolidation process and are looking at several options right now.” Company’s stock has careened some 56% since hitting a high of BRL22.81 in mid-November. Its market cap stands at BRL716m. In April, Brascan Residential acquired MB Engenharia for an open-ended price tag that could range from BRL160m-BRL500m or more, depending on future earnings. In June, Cyrela paid BRL1.54bn for fellow developer Agra, while earlier this month Brasil Brokers took a 51% stake in Abyara’s brokerage business for BRL250m. Among the more vulnerable Brazilian developers are Inpar, down 82% from its IPO, EZ Tec, down 70%, CR2, down 59% and Helbor, down 46% from its IPO price. Brascan Residential’s stock is down 60% from its IPO, but the company counts on sponsorship from its wealthy parent, which has some $40bn in global real estate holdings.

Ultrapar is buying Texaco’s Brazilian fuel marketing business from Chevron for BRL1.16bn. The transaction is to be paid with Ultrapar’s own cashflow, the company says. The acquisition comprises of approximately 2,000 service stations and 48 distribution terminals, Ultrapar says. The purchase will allow Ultrapar’s gas station network Ipiranga to get national coverage, the company says. Ipiranga’s and Texaco’s operations will create a network of 5,000 service stations, comprising 23% of the Brazilian market, Ultrapar says. Merrill Lynch advised the Brazilian company on the purchase, a company spokeswoman says. In June, Ultrapar acquired 100% of port terminal operator Uniao Terminais for BRL482.7m. Freshfields was the legal advisor to Ultrapar on Texaco.

Debt and equity markets may be dying, but M&A is thriving, particularly in Brazil, and investment banks are making serious money. The latest numbers from Dealogic show an 18% increase in disclosed M&A advisory fees, to $359m in the year to mid-August, from $304m in the corresponding period of 2007. Credit Suisse has grabbed the lead, with a hefty $80m in fees so far, some 22% of the LatAm M&A pool. This is a 123% improvement versus last year’s $35m and almost 13% more than the shop made in the entire 12 months of 2007. Citi meanwhile has dropped to second place, with $64m, down 24% on 2007. Rothschild has leapt to third, with $31m in fees, and the next four places are taken, respectively, by: UBS, Goldman Sachs, JPMorgan and Morgan Stanley. M&A market participants expect another banner year from LatAm in 2008.

Melbourne-based conglomerate Orica has purchased the 48.6% it did not own of its Peruvian mining joint venture Samex from its partner Enaex for $58.2m. Completion of the acquisition is expected by the end of October, Orica says.

Brazilian meat processor Marfrig plans to raise BRL1.375bn from a private share sale, to fund its acquisition of Grupo OSI’s operations in Brazil and Europe. Existing Marfrig shareholders will have first rights to buy 64m new voting shares for BRL21.50 each, during a period to be defined this week. Marfrig agreed in June to purchase the OSI assets for $400m cash and $280m in shares. There is no bank involved, according to a Marfrig investor relations official.

Arcos Dorados, the holdco for McDonald’s LatAm business, has altered its takeout strategy for a $350m 18-month M&A bridge loan raised via Santander in August 2007, say people close to the company. The sponsors – including executive Woods Staton, DLJ South American Partners and Brazil’s Gavea – were most recently hoping to raise local currency loans in Brazil, Mexico and Puerto Rico and feed proceeds back to the holdco to pay down the bridge, which matures in February 2009. The new plan is to do a takeout by raising a $350m international syndicated loan at the holdco level. FX swaps into local currency to match revenues will be employed where necessary, say people familiar with the process. Pricing in the international market appears more attractive than the combined rate that can be achieved locally, say executives involved in the transaction. And a single facility at the holdco level makes for a less complex debt structure, they add. Santander had hoped to turn the transaction into multiple local currency takeouts, exploiting its widespread local networks and domestic balance sheet. The original proposal involved local bond markets, then changed to the domestic loan market. Now, a dollar loan, with no particular on-the-ground expertise required, seems to be the best way to go for Arcos. Pricing and tenor are heard close to being finalized. Santander will lead. Arcos Dorados purchased a 20-year franchise for the LatAm business last year for $700m, half of which was paid with equity.

An eventual acquisition of Lonmin by Xstrata could put the Swiss company out of reach of Brazil’s Vale, which earlier this year tried to acquire it for some $90bn, according to a banker familiar with the companies. On Wednesday Xstrata made an unsolicited $10bn bid for Lonmin, which was summarily rejected by the UK-based miner’s board. Mick Davis, CEO of Xstrata, referred to discontinued talks with Vale in a statement accompanying H2 results Wednesday, noting both sides of the deal see significant value in a tie-up. But with credit markets deteriorating, an attempt by Vale to revive its play for Xstrata looks less likely. And adding a $10bn asset to Xstrata only makes it pricier. Vale recently raised $12bn in equity without any apparent need for the cash other than potentially a large acquisition. Advisory and financing fees on the Vale-Xstrata deal are heard running into hundreds of millions of dollars, which has LatAm bankers harboring hopes for a revival.

Anglo American has completed its acquisition of two Brazilian iron ore projects from Brazil’s MMX in a deal worth BRL5.4bn. The announcement brings to a close a process that was disrupted at the last minute by an unexpected investigation by the Brazilian federal police into Eike Batista’s companies, including MMX. Anglo said at the time it was evaluating whether or not to push ahead with a deal that had been agreed upon in January. To guarantee the sale went through, Batista pledged to personally pay any losses related to the project out of his own pocket. The London-listed miner bought a 63.5% stake in IronX, the holding vehicle for MMX’s 51% interest in the Minas-Rio iron ore project and 70% interest in the Amapa iron ore system, at BRL28.147 per share. Anglo American will make a buyback offer to minority shareholders, which could take the deal’s value to BRL8.6bn if successful.

Colombian investment holding company Inversiones Argos has clinched COP420bn ($232m) in a 3-year bullet loan through Bancolombia and BBVA to fund the acquisition of local investment firm Colinversiones. An Argos spokeswoman declined to provide pricing information, citing confidentiality issues. The buy is part of Argos’ push into the Colombia energy market, where Colinversiones has significant presence. The transaction also involves a share swap with investment companies Inversiones e Industria and Antioquena de Inversiones, owners of the stake in Colinversiones, Argos adds. With this investment, Argos raises its stake in Colinversiones to 24.3%, says Argos.

San Antonio Oil & Gas is wrapping up syndication of a multi-part $575m loan that will take out an M&A bridge from mid-2007 via Citi and Calyon. This second attempt at a syndicated loan market takeout appears to have succeeded, but it cost the pan-regional company and its Brazilian lead private equity sponsor GP Investments an arm and a leg. More than 80% of the funds are priced over Argentine CDS, which have risen sharply this year amid political tumult. The 3-year CDS has widened some 72% since the beginning of January, while the 5-year is 52% wider, according Bloomberg data. “It got done because the sponsor was willing to pay up,” says a banker close to the process, adding the deal is structured to allow GP to call a large portion of the funds at little or no cost should a bond takeout opportunity present itself. A $275m 3-year senior secured piece via Citi, Calyon and Inbursa came at 400bp over Libor, plus 3-year CDS. In the 10 sessions through last Friday, 3-year CDS averaged 665bp, which would result in a total spread over Libor of roughly 1,065bp. Deutsche Bank bought and redistributed to hedge funds a $195m 5-year piece at Libor plus 400bp plus 5-year CDS, which averaged 698bp in the same 10 sessions. Standard Bank underwrote a $50m 5-year piece carrying Colombian credit at Libor plus 500bp, while Citi underwrote two more local currency pieces: a $30m ARP-denominated 4-year loan at BPC plus 650bp and a $25m COP-denominated 5-year one at DTF plus 550bp. The strategy to break up the financing into smaller, more digestible pieces seems to have worked better than a failed attempt in late 2007 to syndicate a 5-year amortizer and a 5-year bullet with large step-ups. San Antonio is made up of Pride International’s former LatAm assets, which GP bought last year for $1bn. GP declined to comment.