A new phase of private sector restructuring and consolidation is underway in Latin America, and dealing with corporate clients requires a special set of disciplines, skills and contacts. Morgan Stanley Dean Witter, the winner of this year’s LatinFinance award for the region’s best M&A house, has demonstrated impressive flexibility and versatility in a number of complex and challenging deals.
Stephen Cunningham, head of Latin American investment banking at Morgan Stanley, says the bank’s success this year is due to a strong team, the bank’s global franchise and close relationships with some of the world’s largest companies. These relations paid off royally this year, when Telefónica de España hired Morgan Stanley to run its tender offer and when AES, the US power company, mandated the firm to mount a hostile bid for Electricidad de Caracas (EDC), the Venezuelan utility.
Ian Reid, principal at Morgan Stanley, comments that “we are in a new phase in M&A work in Latin America, in which the private sector is driving the market. Institutions with extensive relationships with multinationals are better-positioned to serve the market effectively.”
Stephen Cunningham, head|
of Latin American investment
banking, Morgan Stanley
Morgan Stanley and Goldman Sachs originated January’s $16 billion tender offer by Telefónica to buy out its minority shareholders in four Latin subsidiaries.
Guillermo Jasson, the Morgan Stanley M&A principal who managed the deal, says it was extremely challenging because it required locally listing Telefónica shares in three Latin American countries and executing eight simultaneous exchange offers for four companies involving five jurisdictions-Argentina, Brazil, Peru, the US and Spain. The all-stock transaction delivered a 40% premium to shareholders and incurred no additional debt.
“This operation had no precedents,” says José María Alvarez, Telefónica’s chief financial officer, “We really needed someone with expertise in the US markets, and a lot of capital market expertise locally and here in Spain. We needed a global institution, one with a sound and deep relationship with Telefónica.”
Morgan Stanley also played an important role in the AES transaction. Morgan Stanley won the mandate partly because of the successful high yield bond it placed for an AES subsidiary in Hong Kong in 1996. Jeff Safford, chief financial officer at AES Americas, says, “They performed extremely well and we were impressed with Morgan Stanley.”
The bank’s team also showed more mettle than some of its competitors, who worried about the political implications of mounting a hostile bid in a country run by a government unsympathetic to foreign capital. According to Safford, Morgan Stanley “read the politics very well.”
In Mexico, Spain’s Banco Bilbao Vizcaya Argentaria (BBVA) called in Morgan Stanley-plus Salomon Smith Barney and Merrill Lynch-following an unsolicited bid from Banamex for Bancomer after BBVA had already initiated an agreed merger. Although BBVA had to pay $2.1 billion for Bancomer, significantly more than its original bid, it managed to win control of the bank in June, only a month before potentially disruptive presidential elections and in an atmosphere of growing nationalism. Banamex, then the country’s biggest bank, had launched its bid on the day Mexico celebrates its independence from Spain.
Morgan Stanley has also won several notable mandates in Brazil. It acted for Banco Itaú, the country’s second private bank, in its acquisition of a 12% stake in AOL Latin America, a deal worth $400 million. And Bestfoods of the US also chose the firm to negotiate the acquisition of Arisco, a local food company.
Goldman, Morgan Stanley’s old rival, has done well too, especially in telecoms. In addition to the Telefónica deal, Goldman advised Bell Canada International on its $3 billion joint venture with Telmex in Latin America. It worked with Motorola on the $2.6 billion sale of its cellular companies in Mexico to Telefónica and advised the Mexican government in its $1.5 billion sale of the bank Serf’n to Banco Santander Central Hispano.
Chase has moved up the Latin M&A rankings, claiming an 11% market share of completed deals in the first nine months of the year. This is twice its share for the same period in 1999. Chase advised Globo when it sold 30% of its Internet portal to Telecom Italia for $810 million. Argentina’s CEI Citicorp Holdings chose Chase to handle its $4 billion strategic alliance with Telefónica. Chase also advised Banamex in its abortive bid for Bancomer.
Salomon has some impressive achievements in Mexico this year as well. It worked with Morgan Stanley on the BBVA-Bancomer deal, managed the spin off of Telmex’s mobile business and handled Cemex’s $2.9 billion acquisition of Southdown, the second-biggest US cement company. LF