Category: M&A

M&A activity is picking up in Brazil at a brisk pace, with 2008 deal volume on track for a record year, according to Dealogic. But hostile activity – whereby an acquirer makes an unsolicited, often public offer to acquire the shares of its target – is likely to still be some years off in Brazil, according to a panel of bankers and lawyers at a Brazilian-American Chamber of Commerce event Wednesday. “In three to five years, this market will develop aggressively,” says Nicholas Aguzin, head of LatAm investment banking at JPMorgan. “But it’s unlikely that we’ll see any hostile transactions in the next few years.” The reason is primarily the country’s low level of publicly traded stock combined with an absence of shareholder activism that is instrumental in supporting hostile bids. While Brazilian entities have raised upwards of $65bn in the equity markets in the past few years, much of that on the more transparent Novo Mercado, regulatory changes are also still needed. “It is mathematically possible to have a hostile takeover in Brazil,” says Eduardo Boulos, a partner in M&A at Sao Paulo law firm Levy Salomao, referring to the fact that many companies listed on the Novo Mercado have a diverse enough ownership structure to allow it. But so far, there have been no successful such deals – only exclusive, negotiated “friendly” transactions, with the only major attempt – Sadia’s 2006 bid for Perdigao – failing for lack of an attractively priced offer.

Colombian private equity shop Tribecapital Partners has bought a 35% stake in local oil and gas exploration company PetroLatina for $25m. The acquisition was made through Tribecapital’s subsidiary Tribeca Oil and Gas, the firm says. The funds will provide PetroLatina with additional cash resources to cover outstanding liabilities and fund its operations in Colombia, Tribecapital says.

The May 23 Daily Brief “Gerdau Takes Stake in Specialty Steelmaker” incorrectly states the basis for debentures to be issued in the acquisition of Acos Villares. The correct price is TJLP plus 75bp.

Bank of Nova Scotia is beefing up in Peru with the acquisition of 100% of Banco del Trabajo from Grupo Altas Cumbres. “This transaction represents a unique opportunity for Scotiabank to expand in the growing Peruvian micro-enterprise and consumer finance segments,” says Carlos Gonzalez Taboada, CEO of Scotiabank Peru. The merged entity will make Scotiabank Peru the number one bank in the Peruvian consumer finance segment and number two in micro-lending, according to Scotia. It also includes a co-branding arrangement with Jockey Plaza, the upscale mall in Peru. Established in 1994, Banco del Trabajo is the 9th largest commercial bank in Peru, with 132 points of sale and total assets of $430m at the end of 2007, representing 1% market share, says Scotia. The deal awaits regulatory approval.

Mexican retail pharmaceutical group Casa Saba has acquired 100% of Brazilian pharmacy chain Drogasmil for BRL185m. The purchase constitutes Saba’s first acquisition outside Mexico, says Saba. Drogasmil’s sale totaled BRL270m in 2007, the company says. It operates in the populous Brazilian states of Rio de Janeiro, Parana and Sao Paulo. In 2007, Saba had sales of MXP25bn.

Telemar, whose Oi unit is buying Brasil Telecom (BT) for an estimated total consideration of BRL16bn, is eyeing the loan market for acquisition financing, which it wants all in local currency, say executives close to the process. The desire may be wishful thinking on the part of the telecom giant, says a veteran LatAm loans banker considering participating, whose team estimates up to BRL10bn-BRL12bn could be done in local currency. Whether it is the full amount, or less than two thirds, a BRL-denominated facility of that size would set a new precedent for domestic currency lending in terms of size. The fact that many of Telemar’s relationship banks on the facility do not have natural BRL funding bases would lead them to seek funds in the FX swap market. A list of participants is still forthcoming, but a mix of local, European and US banks are heard involved at senior levels. Credit Suisse and Morgan Stanley advised the buyer, while Citi advised the seller in the Oi-BT M&A.

Despite disappointing pricing and sloppy secondary performance, Mexican silver miner Fresnillo did manage to extract almost £1bn from a hostile equity market, some of which might be used for M&A. The $1.94bn equivalent IPO spinoff from Penoles went 80% to UK investors, with the rest bought mostly by US accounts. “The quality of the book was extremely high,” says a banker on the deal, describing the bulk of buyers as “industry experts.” He adds that of the 180m shares sold, only 5% changed hands in the first day of trade, and predicts a rebound in price. “This was a deal that was covered, obviously we would have liked it to have been covered more. We still think that it’s a fantastic achievement to raise a billion pounds for this asset. It’s not an easy climate at the moment but we are incredibly pleased,” adds the banker. However, analysts were not impressed. “This is an interesting deal but comes at a difficult moment in light of the retreat in silver,” says mining research specialist Hallgarten, which has a short recommendation on Fresnillo. “We are not into the concept of paying $8bn for a stock that only produced $161m last year and might at a stretch produce $230m in FY08,” it adds, saying that it is waiting for significant retracement before buying. According to Hallgarten, Fresnillo might use proceeds to buy Mag Silver, the silver exploration company focused on the Mexican silver belt. The Vancouver-based entity was trading close to $13 Friday and Hallgarten says it could go for $18 a share or more. “Fresnillo is by far the best fit buyer, and the buyout will almost certainly be friendly,” says the research boutique.