Category: Daily Brief

Just days after the announcement of its acquisition of Quattor in Brazil for BRL7.57bn in equity and assumed debt, Braskem has unveiled a $350m purchase of Sunoco Chemicals, a US-based polypropylene specialist. Braskem has for months been signaling plans to acquire a US target, and joins the few Brazilian exporters with physical presence there. Bernardo Gradin, CEO, says Braskem was in talks with 6 companies in the past 6 months about an acquisition. He adds that there may be interest in acquiring more companies in the US. Braskem specializes in polyethylene and polypropylene, and Sunoco only produces the latter. The target will be renamed Braskem and not issue shares or become a financially independent entity, notes the CEO, speaking to reporters on a webcast Monday. Braskem says it will pay for the purchase in cash, of which it had some BRL7bn on hand as of Q4. After the deal, the company’s leverage stands at 3.24x, adds Gradin. Braskem’s goal is to maintain leverage at around 3x or less in the long term. It was 2.7x prior to the Quattor purchase. “Over the next 6 months we will be restructuring the capital structure of the company,” says Gradin. The financial reorganization will be primarily focused on incorporating Quattor and its debt, most of which is accounted for in BRL-denominated bank loans. Braskem CFO Carlos Fadigas said last week the company will likely look to the bond market to term out and dollarize some liabilities. Braskem’s next moves are to secure $3.5bn in equity capital from Petrobras and Odebrecht, and raise an additional $1.0bn from existing investors, says Gradin. JPMorgan advised Braskem in its purchase of Sunoco, while the target hired Blackstone.

LatAm M&A is on a tear, opening up the possibility of a slew of investment banking and ancillary financing fees. Volume of announced deals jumped to $18.4bn last month versus $12.2bn in January 2009 and $10.8bn a year earlier, Dealogic data shows. “CEO confidence is way up,” says Marcus Silberman, head of M&A for the region at Credit Suisse. “You have to look at it in a relative sense: LatAm and China are doing much better and are growing a lot more than developed markets,” he adds. Since the year began, the region’s 5 largest M&A deals, both ongoing and announced, add up to $25.0bn, including Vale’s purchase of Brazil fertilizer assets ($6.3bn), Braskem’s Brazil and US acquisitions ($1.2bn), Femsa’s sale of beer assets to Heineken ($7.6bn), Cosan’s JV with Shell ($4.9bn), and CSN’s live bid for Cimpor ($5.4bn). January 2010 was the busiest month for announced M&A in the past 10 years, according to Dealogic. On top of that, the period includes Carlos Slim’s telecom asset rollup, which is worth $27.8bn. Not counting the America Movil-Carso-Telmex transaction, January ranks as the third most active month for announced deals in the past 3 years for LatAm. Pent up demand for acquisitive growth, combined with the fact executives in both emerging and developed markets believe parts of LatAm are in better shape now than they were even 2 years ago, adds fuel to the fire. Financing markets are also accommodating, making planning for big ticket purchases an easier task for CFOs. “There is financing and credit available for M&A,” says Silberman, noting issuers have made good use of local and cross border options in both equity and debt markets.