Category: M&A

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.

Vale has agreed to acquire mining and surface rights owned by fellow Brazilian Mineracao Apolo for $145m. The purchase includes 1.1bn metric tons of iron ore located in the state of Minas Gerais. Vale will fund the acquisition using its own resources, a spokeswoman says.

Mexico-based FEMSA, the major regional beverage firm, is on the acquisition trail, potentially beyond LatAm. The firm is establishing a small beachhead in Colombia this year of 20-30 stores, a strategy it will fine tune over the next 1-2 years, FEMSA CFO Javier Gerardo Astaburuaga Sanjinés tells LatinFinance. FEMSA is using the foray to prove its retail model can be used outside Mexico, with an eye to eventually expanding outside LatAm, adds Astaburuaga, who is also vice-president for strategic development. The firm has very low leverage, at close to 1x net debt to Ebitda. Astaburuaga concedes that there may be some inefficiencies associated with such ratios, but he sees strategic value in being flexible and able to pounce on any attractive purchase when it arises. “In the case that we acquire something outside Latin America . . . we will look at local markets,” says Astaburuaga, speaking of the financing strategy. He adds that Europe and Asia are potential locations for expansion.

The long anticipated acquisition of Brasil Telecom (BT) by Telemar’s Oi, announced Friday, sets the stage for jumbo M&A financing that could exceed BRL16bn in size. Oi agreed to buy the equity in BT for BRL5.86bn. But it is heard having to shell out an additional BRL11bn to cover all of its subsidiaries’ debt and equity, including minority shareholders in those entities. Telemar is meanwhile narrowing down a list of lenders on a facility said last week to be in the BRL16bn size area, according to bankers. The company will seek to raise as much as possible in local currency, providing an interesting data point for BRL syndicated lending, which remains undeveloped. According to a statement filed with the CVM, Credit Suisse is the buyer of record for 100% of the shares in Invitel, the holding company that controls BT. The investment bank is also acting as an endorser and intermediary for Telemar in the deal, says the contract. Credit Suisse advises Oi while Citi is working with BT.

Brascan Residential Properties has completed the acquisition of Brazil’s MB Engenharia for at least BRL164m. The real estate company controlled by Canada’s Brookfield Asset Management will pay BRL24m cash to MB shareholders, and at least another BRL140m in 2011, depending on cash flow generation. Brascan aims to tap housing markets in MB’s stronghold in the country’s center-west region. Banco Brascan advised Brascan on the transaction, and Credit Suisse and Unibanco advised MB. Separately, Brascan’s board approved a buy back of up to 7.4m of its shares, authorizing up to BRL110m for the operation.

Brazil’s Telemar is summoning relationship banks to put together a BRL16bn acquisition facility. The company, whose subsidiary Oi is making progress with discussions for the acquisition of Brasil Telecom, is heard to have narrowed a short list of potential bookrunners down to eight. And it is seeking to denominate as much as possible in local currency, which one banker believes could account for well over half the total. Such a large BRL facility will test the depth of the local loan market and foreign banks’ willingness to take FX risk. A banker close to the process estimates the financing commitment will be for the full BRL16bn, but that the actual facility may vary in size depending on the availability of other markets such as local debentures and cross border bonds. Tenors and pricing are still being decided. Known relationship banks for Telemar include Santander, ABN AMRO, Citi, Calyon, Societe Generale and JPMorgan as well as locals Banco do Brasil, Itau, and Bradesco. Legal shareholder disputes between investors in the companies, including Citi and Rio-based asset manager Opportunity, have delayed the acquisition process.

Oi has not completed a merger with Brazil Telecom, according to an official at the Brazilian telecom, who rejects local press reports to the contrary. There have been no advances since March 28, when the company announced that it was in talks with Brasil Telecom shareholders. Agencies also reported Friday that an ongoing legal battle between Citi and Brazilian fund manager Opportunity could threaten the merger of the two telecoms. The two entities, along with a group of Brazilian pension funds, control Brasil Telecom. Citi has sued Opportunity for $300m, according to the press reports.

Brazilian dairy foods giant Perdigao announced Tuesday the purchase of Cotoches, a milk processing company in Minas Gerais, for BRL54m and the assumption of BRL15m in debt. The acquisition is part of Perdigao’s expansion plan in the local market, the company says. An additional BRL30m will be invested to upgrade Cotoches’ factories into Perdigao’s food safety and quality standards.