Top 100 M&As
www.latintrade.com March, 2003
Tough times, tight money and increasing competition are now pitting Latin America’s largest companies against each other and a handful of foreigners in a feud for strategic acquisitions in the region.
Latin American output shrank in 2002, the first time in 19 years. Private capital flows to the region plummeted almost 50% to US$25 billion, reports the Institute of International Finance in Washington, D.C. Completed mergers and acquisitions fell 24% to less than $38 billion, its lowest level in six years, according to Thomson Financial.
The limited number of done deals, however, masks the underlying movements of a select group of Latin America’s most powerful businesses. They’re busy grabbing up assets from both retreating multinational companies and beleaguered family-run empires.
TELECOM Mexican billionaire Carlos Slim is expanding his telecom interests across the Americas. He spun off his $3.2-billion Carso Global Telecom into holding company Telecom Américas, then invested $2.3 billion buying out big partners U.S. telecom SBC and Bell Canada International. The famed bottom-fisher hunts big game in Brazil and beyond. Spain’s multinational wireless company, Telefónica Móviles, continues to pressure Slim with strategic purchases in Mexico. Brasilcel, the merger of its Brazilian operations with Telecom Portugal, recently acquired Brasilia-based mobile operator Tele Centro Oeste for almost $1 billion. Still unclear: What will happen with Brazilian and Mexican long-distance companies Embratel and Avantel, holdings of financially troubled U.S. carrier WorldCom.
OIL Brazil’s state-run oil giant Petrobras is making a play to secure its position as a leading Latin American oil company. In October, Petrobras paid $1 billion for 59% of private energy group Perez Companc, which expects to spend another $2 billion over the next five years to beef up international production, mainly in Venezuela but also Peru, Bolivia and Ecuador. Earlier, Petrobras swapped a billion dollar’s worth of assets with Spanish-Argentine energy giant Repsol-YPF for a share of its Argentine retail gasoline and refining business. National strikes, meanwhile, have paralyzed Petróleos de Venezuela, the region’s largest oil company, where the government talks of selling the state-run company’s U.S. refining subsidiary Citgo.
BEVERAGES Brazil’s Ambev and Colombia’s Bavaria have staked out territory as the No. 1 and No. 2 brewers in South America. Ambev snatched Argentina’s Quilmes Industrial from minority shareholder Heineken. Similarly, Bavaria ripped Peruvian powerhouse Backus and Johnson from the clutches of Venezuela’s Empresas Polar. Heineken has pushed forward with acquisitions in Brazil and Central America, but the big prizes in the major countries seemed to have slipped away, for now. With its acquisition of Miller Brewing Co. in the United States, South African Breweries gained a foothold in Costa Rica and proceeded to expand its operations in Central America.
BANKS Bradesco President Marcio Cypriano and Banco Itaú CEO Roberto Setubal, chiefs at the No. 1 and No. 2 private banks in Brazil, continue to consolidate control over the country’s banking market. The two institutions spent almost $2 billion last year. Banco Santander Central Hispano (BSCH), BBVA and Citibank also took advantage of the down market to consolidate. BSCH and Banco Santiago merged in a $1.7 billion deal to consolidate control of Chile. BBVA increased its holdings in subsidiaries in Mexico, Argentina and Uruguay. Banacci, Citibank’s Mexican affiliate, bought full control of its pension fund subsidiary for $1.2 billion.
POWER The next big wave of mergers and acquisitions appears poised to happen in the power sector. Debts in dollars but earnings in local currencies meant that devaluations and slow growth nailed international Big Power. “The bottom line is that the only way they’re going to grow is with demand, and that depends on the [domestic] economy,” says Jason Todd, director of Latin American power ratings for Fitch Ratings in Chicago. What’s ahead for the Latin power kings? Here’s the play-by-play:
AES Corp. After bingeing on Latin American assets during the headier days of a rising stock market, global power giant AES reported a US$2.7 billion dollar hit in the fourth quarter of 2002. Among leading reasons for the pain: Brazil and Venezuela, where write-downs and currency losses added up fast. Projects in Argentina and Colombia defaulted as well. It’s quite a comeuppance for a company that acquired so much, so fast in the region. What’s ahead: Facing reality, AES renamed its Turnaround Office the Restructuring Office, which it says is now actively managing its assets in Chile, Argentina and Brazil. AES tells investors it is busy now trying to figure out which companies can be rescued and which must be “sold or abandoned.”
Duke Energy International North Carolina’s Duke Energy perhaps can breathe a sigh of relief: It’s foreign holding unit, Duke Energy International, reported only slight losses in 2002, down US$221 million, almost entirely from European dealings. Meanwhile, it has built up a portfolio from Guatemala to Buenos Aires, more than half at Companhia de Geração de Energia Elétrica Paranapanema in southwestern São Paulo state, Brazil. What’s ahead: While Duke overall took a slight hit on a slowing economy, the company reports $2.9 billion in available credit. Duke’s managers, however, say they’ll batten down the hatches and make sure each unit is producing according to demand.
Endesa By the end of 2002, facing skeptical investors and slipping domestic economies, Spanish utility Endesa began hedging its bets in Latin America. Chilean holding company Enersis, Endesa’s base of operations in the region, took $290 million in accounting charges on lost investments in Brazil and Argentina as short- and medium-term debts of $2.2 billion cast a cloud over the company. What’s ahead: Don’t look for $4.5 billion-revenues Endesa to bail, just regroup and look for new opportunities. Even as it cleans up the books in Chile, Enersis put $100 million into Brazil’s Companhia de Eletricidade do Rio de Janeiro, increasing its stake to almost 73%. And the Spanish power giant is looking closely at power-hungry Mexico.
PSEG Global New Jersey energy company PSEG Global holds interests in 1,900 megawatts and distribution assets in Brazil, Chile, Peru and Venezuela. There was no hiding from Argentina’s decline, though: In 2002, the company reported $541 million in charges, $370 million from lost investments in the collapsing Southern Cone economy. What’s ahead: PSEG settled out-of-court to sell its stakes in several Argentine distributors and generators to AES Corp. for $30 million, a fraction of its original asking price of $376 million (AES had invoked a “political risk” clause to avoid paying full price). In Peru, meanwhile, PSEG’s ambitions have been frustrated by privatization delays.
Top Financial Advisers Rank ‘02 Rank ‘01 Adviser Value Deals US$ millions 1 1 Citigroup/Salomon Smith Barney 9,244.10 16 2 2 JP Morgan 8,151.40 29 3 6 Credit Suisse First Boston 8,056.30 24 4 3 Goldman Sachs & Co 6,923.90 10 5 4 Merrill Lynch & Co 6,690.90 12 6 5 Morgan Stanley 3,875.20 9 7 9 UBS Warburg 1,968.10 6 8 17 Credit Lyonnais 1,681.70 3 9 7 Santander Central Hispano 1,583.90 14 10 19 Dresdner Kleinwort Wasserstein 1,573.00 3 Source: Thomson Financial
Author: Mike Zellner & Greg Brown • Miami