Category: M&A

Simec, a subsidiary of Mexican steelmaker Industrias CH is in talks to acquire peer Aceros San Luis. Aceros is held by a group of private investors. Simec raised $240m last year to fund expansion, including acquisitions. Local media reports speculate the transaction, subject to approval by Simec’s board and Mexican regulatory authorities, could reach $800m.

A number of LatAm groups on Wall Street posted record revenues in 2007. Investment banking business picked up noticeably, boosted by equity capital markets and M&A, while some structured products groups also posted double, even triple digit growth over 2006. But few, if any, LatAm executives saw a rise in their year-end bonuses commensurate to their groups’ production. Many bankers were understandably disappointed at having to pay for the sins of other parts of their firm, and headhunters say they’ve received numerous emotional calls over the past few weeks as the paltry figures were delivered. Others tried to shrug off the disappointment. “It comes with being part of a large institution,” says one New York-based banker for the region, adding the subsidies his group is providing other parts of the bank may someday flow back if LatAm goes through a rough patch. In the end, it seems LatAm did alright for itself considering how badly other regions did and how strong 2006, the basis for comparison, ended up being. Many bankers say their bonuses were flat to last year. One compensation expert says mid-level and senior executives should try to look on the bright side of things. “You’re not exactly hurting if you’re flat at $1.8m.”

Vale has apparently requested that bookrunners on its $40bn+ Xstrata acquisition financing commit to tickets of up to $6bn. This is bigger than the average loan in LatAm, and certainly the largest commitment figure to date in the region. Commitments for the 2006 Inco acquisition deal were $1.5bn and seen as hefty at the time, when the bank market was much more liquid. Nonetheless, Santander, HSBC, BNP Paribas, Credit Suisse and RBS, via ABN AMRO, are known participants in the deal. Citi, Calyon and Lehman are also rumored to have roles. Several others are also considering ways to participate at the MLA level. And Merrill Lynch is said to have been jettisoned from the transaction after failing to stump up the cash. A short timeline is expected for the financing, with many bankers estimating a February close. However, a bid has apparently not yet been presented, and a number of obstacles remain, not least from the Brazilian government and the target’s main shareholder Glencore. The saga may also be complicated by another bidder. China Development Bank is alleged to be considering buying a stake in Xstrata, and Anglo American is another name rumored to be in the fray.

M&A deals targeting LatAm have so far this year reached $4.3bn yesterday, a 14% rise over the YTD figure in 2007, according to Dealogic. The average deal size increased to $113m from $97m last year during the same period. Within the region, Brazilian assets accounted for the biggest portion of the dealflow, with $2.4bn across 36 transactions. Chile was next, with $1.2bn via five deals. Dealogic counts concessions and privatizations as M&A transactions.

Brazilian mining giant Vale and its bankers are gradually piecing together the biggest loan financing ever for LatAm, a $40bn+ acquisition facility for Swiss-based miner Xstrata. The transaction, described by bankers on it as a sure bet for Vale, is expected to include a series of tranches, ranging from short-term bridges of 18 and 24 months to longer tranches with tenors of three, five and seven years. They will include both trade-related and working capital facilities. For LatAm loans, the benchmark instrument is the 5-year trade-related piece. Some of Vale’s relationship bankers estimate pricing for that portion should land in the Libor plus 150bp area. But others are skeptical, noting that this would be more than twice the 62.5bp Vale paid for 5-year piece of the Inco loan at the end of 2006, and well over the 100bp over Libor that Gerdau paid for the comparable portion of its $2.75bn facility to buy Chaparral last Fall. But market conditions have deteriorated since then and the Xstrata debt financing is at least 15 times the size of Gerdau’s facility. That alone commands a premium, say bankers. Identifying a price that will clear the market and expedite the rest of the acquisition is of utmost importance, which suggests Vale may look to err on the generous side, as did Gerdau at the time.

The merger of Chilean retailers Falabella and Distribuicion y Servicios (D&S) ? billed as the biggest LatAm M&A yet in that sector ? is unlikely to be revived, according to analysts. Chile’s antitrust regulator, the Tribunal de la Libre Competencia (TDLC), voted unanimously late last week to reject the $4.5bn union, which was announced in May 2007. The companies should consider whether they even have a reasonable chance at successfully appealing the deal in the Supreme Court, given the unanimity of the decision, says a LatAm-focused lawyer familiar with the transaction. Ricardo Jungman, an antitrust expert in Chile, told local agency Orbe that he was sure an appeal would not result in a change of decision. The combined company would have had a market cap of over $15bn and a nearly ubiquitous presence in Chile. It would have been considerably larger than Cencosud, the next biggest player, which in December announced the purchase of Wong, Peru’s largest retailer. The decision by the TDLC was unexpected by the market. A previous ruling at a lower level had approved the merger, provided the combined company sold off some stores. Falabella and D&S hired JPMorgan to provide valuation services for the deal. No other banks are reported to have been involved.

The TDLC’s decision to reject the Falabella-D&S merger may have long-lasting repercussions for Chilean M&A, say bankers and lawyers. “This is worrisome because it sets a precedent,” says a New York-based M&A banker. Another Chilean banker agrees, saying he is worried about future implications. “They rejected the deal because they said the new company would be too powerful. But if [it is] not that big, it can’t compete internationally,” he says. One lawyer notes the retail sector in Chile is highly competitive, and that antitrust decisions may be weighed more heavily as they have a direct impact on consumers. The company maintains that $1.4bn in synergies from the merger would translate into better prices and increased competition. “This will probably require people to pay closer attention to the antitrust issue [in Chile] going forward,” observes the lawyer. Separately, the decision may also reignite M&A activity in the sector, notes an Itau report. “D&S may now look at La Polar and/or Ripley to increase exposure in non-food and credit. Conversely the possibility is now open for Wal-Mart, Casino or Carrefour to make a stab at D&S,” says Itau. D&S shares fell a combined 21% Thursday and Friday, while Falabella shares fell 6% on Thursday and then traded up 1% Friday.