Category: M&A

LatAm M&A bankers may be crying over the demise of Vale-Xstrata – which could have added $90bn to the year’s volume – but they are doing much better than their peers in other markets. First quarter targeted volume was $25.86bn from 203 transactions, up 39% year-on-year in volume terms, according to preliminary data from Dealogic. This compares to a 40% decline in global M&A to $652.6bn in 1Q 2008, the lowest since Q1 2004 ($557.3bn). “While volume has decreased, deal count was up 4% from 1Q 2007 driven by deals between $100m and $1bn, now accounting for 40% of global volume, up 13 percentage points from Q1 2007,” says Dealogic. EM targeted M&A activity meanwhile rose 3% year-on-year, to $169.4bn. This was 34% less than in Q4 2007. EM volume was 26% of global M&A volume, up 11 percentage points from Q1 2007 and the highest start to a year on record. “Acquisitions by EM companies into developed markets accounted for 30% of total EM acquirer M&A volume ($50.2bn via 221 deals), up 86% from in Q1 2007 ($26.9bn via 127 deals),” says Dealogic.

The Bovepa and the BM&F, which yesterday announced a merger of equals, seek to become an even bigger LatAm exchange by alliance or acquisition. A new holding company, provisionally called Bolsa Nova, will house the Bovespa and BM&F brands and is expected to have a market cap close to $20bn, making it the second largest exchange in the Americas. Bolsa Nova’s subsidiaries will cover the full range of tradable assets available in LatAm including currencies, commodities, derivatives, fixed income, equity and equity derivatives. The merged exchange seeks to establish a new role as a trade forum serving more than just Brazil. “The idea is to create regional consolidator,” says Marco Goncalves, head of M&A for Brazil at Credit Suisse, which advised Bovespa on the union. The new entity will look to set up specific agreements or make outright acquisitions of other exchanges in the region. One of the most obvious candidates is Mexico’s Bolsa, with which the Bovespa was previously in talks to set up a trading agreement for local investors to buy and settle offshore. The BM&F has also expressed an interest in a linkup with Argentina’s Bolsa de Comercio de Rosario, which trades commodities. Rothschild advised the BM&F on the transaction.

Brazil’s Vale has terminated talks on a takeover of Swiss miner Xstrata that could generated $90bn in M&A volume. Optimism among investors and bankers was running high for a deal up until Tuesday, when the companies jointly announced the termination. Using language that clearly indicates disappointment, the pair emphasized that the deal would have created shareholder value, but that an agreement could not be reached. However, they left significant wiggle room for a return to the negotiating table. Vale reserves the right to make an offer for Xstrata within the next six months if Xstrata’s board agrees to one or if there’s a competing bid, while Xstrata believes a deal creates value for both sides. Glencore, which owns 35% of Xstrata, appeared to be the only block, pushing for marketing agreements Vale was not willing to give. A deal could still take place soon, speculates one investor, who points out Glencore may still decide it is willing to sell its stake for an estimated $25.5bn. Vale has already lined up loan financing of up to $50bn to support the cash portion of a bid. That includes tenors ranging from 18 months to 7 years, with margins over Libor from 60bp to 150bp. JPMorgan and Deutsche Bank are advising Xstrata. Glencore is heard to have hired Citi and Morgan Stanley while Credit Suisse is understood to be among Vale’s advisers.

Brazil’s ETH Bioenergy has agreed to purchase the Usina Eldorado sugarcane mill in Mato Grosso do Sul state. The unit of construction conglomerate Odebrecht does not state the price for the acquisition, but plans to pay BRL700m for the mill and investments necessary to boost crushing capacity to 5m metric tons of cane per year from 2.2m. It also plans to increase electric cogeneration capacity to 130MW from 12MW. The purchase will give ETH two operating mills, in addition to nine greenfield projects. ETH expects to crush 8m tones per year by the 2009-2010 season when the first of its greenfield projects comes online.

The talks between Vale and Xstrata for a potentially $85bn acquisition of the Swiss mining concern are said to be on an upswing, and the two sides are seemingly closer to a deal than they ever have been, according to executives close to the matter. Vale and Glencore, the commodities house that owns 35% of Xstrata, are negotiating hard on two main fronts: the price Vale would pay and the details of a marketing agreement that would permit Glencore to sell some of its commodities. In other words, any deal would definitely include a marketing agreement of some sort. One Europe-based investor says rumors were floating around the market Wednesday morning that an agreement had been reached, but executives close the process said talks are still in progress. JPMorgan and Deutsche Bank are advising Xstrata. Glencore is heard to have hired Citi and Morgan Stanley while Credit Suisse is understood to be among Vale’s advisers. Meanwhile, invites are out to participate in the $50bn loan backing the transaction. At least seven banks have committed to tickets of up to $7.5bn each. Santander, HSBC, Credit Suisse, RBS via ABN AMRO, Lehman, Citi, and BNP are all heard participating. A 5-year trade piece is heard paying around 120bp over Libor, while a 7-year pays 140bp.

Brazilian mining giant Vale has out invitations to participate in a $50bn loan to buy Swiss commodities company Xstrata. The actual acquisition is still far from certain, though the two are heard back at the negotiating table after a rocky week that saw talks almost fall apart. The debt financing portion already counts on at least seven banks that have committed to tickets of up to $7.5bn each. Santander, HSBC, Credit Suisse, RBS via ABN AMRO, Lehman, Citi, and BNP are all heard participating. MLA level syndication will now begin. If successful, it could cut bookrunner holds by up to 50%, say bankers away from the deal. Tickets of as low as $2.5bn are being considered, say bankers away from the process. The transaction is divided into several tranches ranging from 1-year to seven in maturity. The 5-year trade piece is now heard paying around 120bp over Libor, according to bankers familiar with the terms. The 7-year is said to be paying 140bp over Libor. This is tighter than earlier estimates by bankers away from the deal, but in line with Usiminas’ recent blowout $2bn loan that pays 110bp for a 5-year and 135bp on 7-year portions. Invites are heard due March 18.

Brazilian meat producer JBS plans to raise as much as BRL2.55bn in a private placement of new shares to fund $1.28bn in acquisitions of three companies announced late Tuesday. The world’s largest beef producer will bring its global market share to about 10% with the separate purchases of Virginia-based Smithfield Foods for $565m cash, Kansas City-based National Beef for $465m cash and $90m stock, and Australia’s Tasman Group for $150m cash. JPMorgan advised JBS on the two US transactions, while Rothschild advised on Tasman. A date for the share sale, which JBS expects to price at BRL7.07 per share, has not been set. JBS shares closed yesterday at BRL6.94. Moody’s announced it will continue to review JBS’ B1 rating for possible downgrade. The agency is concerned about the integration and execution challenges that JBS faces from 10 acquisitions since 2007, particularly “the ability of JBS to turn around its troubled US beef operations in an operating environment that may continue to present cost pressures and weaker demand.”

Moody’s has put Mexican cable operator Cablemas’ B1 corporate family rating on review for possible upgrade, pending regulatory approval for a 49% equity acquisition by Televisa. “Televisa will shortly become an important shareholder of Cablemas with a 49% or higher stake at its holding company, Alvafig,” says Moody’s senior analyst Nymia Almeida. Televisa may soon also convert a loan to Cablemas’s holding company into equity to take hold of Cablemas network. Moody’s ratings on Cablemas continue to reflect a tight liquidity position, lack of free cash flow, strong dependence on debt to finance building out the network and pressure on operating margins caused by high churn, at 2.5% for video services and 4.3% for broadband services as of September 2007. The review affects a $175m issue of 9.375% senior unsecured global notes due 2015.

What was billed as LatAm’s largest retail sector M&A deal fell apart for good yesterday, as Falabella, the Chilean retail giant, gave up on acquiring competitor Distribuicion y Servicios (D&S). The company filed a statement with the SVS, Chile’s market regulator, saying it terminated talks with D&S for a deal, which was estimated at $4.5bn in size. In February, Chile’s antitrust regulator voted unanimously to bar the merger, saying the deal would impact competitiveness in the sector. The decision was unexpected and startled bankers and corporate executives who feared the TDLC, as the regulator is called, is taking a more hawkish approach to corporate unions. JPMorgan advised Falabella on the valuation and acquisition process. The decision may also reignite M&A activity in the sector, according to analysts. D&S may now look at La Polar and/or Ripley to increase exposure in non-food and credit, according to Itau. Conversely the possibility is now open for Wal-Mart, Casino or Carrefour to make a stab at D&S, the shop said in a February report.

Mid-level Brazilian real estate developers Company and Helbor are in talks to merge, according to local real estate bankers. An eventual deal is viewed as positive by at least one shop. Local banking boutique Banif said Tuesday that the merger should be good for both companies because of the synergies the deal should offer. Minority holders of Helbor stock would especially benefit for becoming shareholders in a larger company. Company went public in 2006 via Banco Real ABN AMRO and Banco Espirito Santo, while Helbor priced its IPO in October 2007 via BBI/UBS.