Portugal Telecom (PT) and Brazil’s Oi have agreed to merge, the two say, in a transaction that will hinge on the market providing a capital increase of at least BRL5bn ($2.28bn). The deal is motivated by synergies – though analysts are skeptical about the savings involved – and a simplification of Oi’s shareholding structure. In the transaction, PT shareholders will come away with 38% of the combined company, and Oi’s holders 62%. The new Brazil-based entity combining PT and four Oi vehicles is to have a single share class listed on the Novo Mercado, and be led by Oi CEO and former PT CEO Zenial Bava. The deal is contingent on a capital increase of BRL13.1bn-BRL14.1bn, consisting of BRL6.1bn in assets and BRL7.0bn-BRL8.0bn cash. Current shareholders of Oi controller Telemar Participacoes and a BTG Pactual investment vehicle have agreed to subscribe BRL2.0bn, leaving at least BRL5bn for the market to buy, likely in a transaction coming in 1H2014. The two parities estimate the merger should bring synergies of BRL5.5bn. The deal was somewhat expected given the pair’s existing association, Alex Pardellas, analyst at GCD Securities tells LatinFinance, though its speed was surprising. Synergies, liquidity and a better structure are the positives, he adds. “The structure is now much simpler. Telemar Participacoes had very high debts and Oi had to pay a dividend above its capacities,” he says. Pardellas notes a risk of the synergies being less than BRL5.5bn, and of the market’s appetite for the full capital raise. “The BRL5.5bn present value of synergies announced by the firms will be very difficult to realize, as some of the savings will be needed for customer retention and growth efforts,” Morningstar says in a report. The merger should create value, Morningstar says, but the shop’s “enthusiasm is tempered” by the planned rights issue, as European rights issues historically are priced at deep discounts. S&P put Oi’s BBB minus rating on negative watch due to worries about
Category: M&A
Colombia Raises Isagen Ask
Colombia’s finance ministry has raised the price it is seeking for its 57.7% stake in generator Isagen, Isagen says, to COP3,178 per share from COP2,850. At the new price level, the government’s stake would be worth about COP4.99trn ($2.63bn), up from a previous COP4.48trn value. Colombians Grupo Argos and EEB have indicated plans to bid for the stake, and foreigners Duke Energy and GDF Suez are also interested, according to remarks earlier this year from Colombian officials. Last month, Moody’s lowered the outlook on Isagen’s Baa3 rating to negative, on a loss of government support. It also notes a legal challenge to the sale process led by former Colombian president Alvaro Uribe. The sale is expected to be complete early next year.
Ultrapar Enters Pharmacy Business
Brazilian fuel and petrochemicals company Ultrapar Participacoes has agreed to acquire Imifarma Produtos Farmaceuticos for BRL1.01bn ($455m), it says, providing an entrance into the pharmaceutical products sector. The transaction includes Ultrapar assuming BRL106m in debt, and paying the remainder via 16.03m of its shares, equal 2.9% of Ultrapar. The buyer hopes to sell Imifarma’s Extrapharma brand products at its service stations, it says. The target has 186 retail locations in the Northern and Northeastern regions of Brazil, and is expected to book BRL70m in Ebitda this year. Imifarma controller Paulo Lazera is to become a member of Ultrapar’s board and will remain in control of the pharmacy retail business. Ultrapar expects the transaction to close early next year, following necessary approvals.
Rubiales Pays Up for Synergies
Pacific Rubiales has agreed to buy Petrominerales for CAD1.58bn ($1.53bn), in a combination of assets that analysts see as beneficial even if coming at a cost. Rubiales is to pay CAD935m and take on CAD640m debt, the two Colombian E&P operators say. Petrominerales shareholders will receive CAD11.00 per share and one share in a newly formed entity to hold Brazilian assets and receive a CAD100m cash capitalization. The level represents a 42% premium to the CAD7.74 closing price in the previous session. The value represents about 40x reserves, Jose Dario Lozano, director of equity research at Alianza Valores, tells LatinFinance, compared to the 20x at which many large oil companies trade. “It’s difficult to know if it is expensive in the long run or not. You need to analyze not only the reserves, but also the cost savings and the value of the pipelines [included in the deal],” Lozano says. “The effect of the transaction in the short term could be negative, as the premium Pacific Rubiales paid is high. However, the acquisition is strategic and could benefit the company long-term,” Serfinco says in a report. Rubiales plans to fund the deal with cash on hand and a $1.3bn committed bank loan to be refinanced following the close. The buyer plans to pay down some of the debt by selling all or part of Petrominerales’ stakes in pipelines, and retaining access through leasing contracts. In calling the deal “credit neutral,” Fitch expects it will marginally increase Rubiales’ leverage – to 1.2x from 0.7x at year end 2012 – and somewhat increase its production diversification. In aggregate, Rubiales gains 18 Colombian blocks, four Peruvian blocks, a 5% equity interest in the Oleoducto Central pipeline and a 9.65% stake in the Oleoducto Bicentenario de Colombia pipeline. The transaction awaits approval from regulators and Petrominerales shareholders. Bank of America advised Pacific Rubiales, and TD Securities advised Petrominerales. Petrominerales shares closed at CAD11.70 Monday.
Maxcom Offer Reaches 44%
A group of investors led by Mexican private equity firm Ventura Capital Privado has acquired 44.7% of the shares of telecom Maxcom’s outstanding shares following the close of a public offer, it says. Ventura Capital last month offered up to $60m to buy the whole company, as part of Maxcom’s restructuring process. A US court approved this month a prepackaged bankruptcy plan for Maxcom, which provides business and residential phone along with pay TV and other services. Lazard has been advising Maxcom.
MMX Hawks More Assets
MMX Mineracao e Metalicos is putting another asset up for sale, the Eike Batista company says. The miner is negotiating the sale of the assets and mining rights of MMX Corumba Mineracao in the state of Mato Grosso do Sul to Vetria Mineracao, which is controlled by rail operator ALL. MMX is also in exclusive talks this month with Trafigura and Mubadala to sell control of the iron ore port near Rio de Janeiro. Under preliminary agreements announced earlier this month, Trafigura and Mubadala would buy $400m of new stock in the MMX Porto Sudeste subsidiary, and come away with a 65% stake.
Colombia’s banks: Foreign affairs
Colombia’s largest financial institutions are on an acquisition spree in Central America. With tough regulations at home, the diversification is welcome
M&A News: Cola wars
Latin America’s Coca-Cola bottlers tussle over the Brazilian market while elsewhere telecom acquisitions heat up
ILC Takes Control of CorpGroup Insurer
Inversiones La Construccion (ILC), the investment arm of non-profit Camara Chilena de la Construccion, has agreed to pay CLP84.5bn ($170m) to acquire 67% of insurer Corp Group Vida Chile from Chilean financial group CorpGroup, it says in a regulatory document. The deal is expected to close before November 30. ILC is a holdco for health and health insurance firms.
America Movil Club Identities Emerge
America Movil’s bridge lending group supporting its KPN purchase includes Deutsche Bank, BBVA, Bank of Tokyo Mitsubishi, Indesa and Mizuho, according to people familiar with the transaction. The 1-year, EUR7.2bn ($9.7bn) bridge loan was put in place at the end of August supports the Mexican telecom’s EUR7.2bn bid for Royal KPN. The status of the deal remains unclear, after the Dutch phone company’s foundation exercised an option to buy shares with the intention of impeding the offer. Deutsche Bank is advising America Movil on the process.