LatinFinance - November/December 2013 - 10

NEWS
M&A

A new, Brazil-based communications giant is in the making as
Oi and Portugal Telecom consolidate their alliance. By Ben Miller

Long-distance calls
For most of the past few
months the talk of the telecom
world was América Móvil's
move for Dutch Royal KPN.
However, Oi, Brazil's biggest
phone company, and Portugal
Telecom (PT) surprised
markets by agreeing to turn
their reciprocal minority
partnerships into a full merger.
With minority investors and
analysts skittish, it is anything
but a done deal. Oi estimates
the transaction will generate
synergies of 5.5 billion reais
($2.5 billion) in net present
value terms - though analysts
are skeptical about the savings
involved - and a simplification
of Oi's shareholding structure.
The deal will hinge on the
market providing a capital
increase of at least 5 billion
reais.
In the transaction, PT
shareholders will come away
around 38% of the combined
company. The new Brazilbased entity is to have a single
share class listed on the Novo
Mercado, and be led by Oi chief
executive and former PT chief
executive Zenial Bava.
The deal is contingent on a
capital increase of 13.1 billion
to 14.1 billion reais, comprising
6.1 billion reais in assets and 7
billion to 8 billion reais cash. At
least 5 billion reais will have to
come from the market, likely
through a transaction coming
in the first half of 2014.
Bank of America Merrill
Lynch, Morgan Stanley and
Banco Espírito Santo are

advising PT. BTG Pactual is
advising Oi.
Meanwhile, the foundation
created to look after KPN's
interests exercised its option
to buy enough shares to block
América Móvil's takeover
attempt. Rather than raise its
price above the €7.2 billion
($9.7 billion) effort, Carlos
Slim's telecom has given up on
getting the remaining 70%.

M&A rank by volume announced, year to Oct 25
BTG jumps ahead
Rank

Advisor

1
2
3
4
5
6
7
8
9
10

BTG Pactual
BofA Merrill
Morgan Stanley
Goldman Sachs
Credit Suisse
Barclays
Espirito Santo
Bradesco
Itaú
JPMorgan

Pacific Rubiales
expands

Pacific Rubiales has agreed
to buy fellow Colombian
exploration and production
operator Petrominerales for
1.6 billion Canadian dollars
($1.5 billion), in a combination
of assets that analysts see as
beneficial even if coming at a
cost.
Rubiales is to pay 935 million
Canadian dollars and take on
640 million Canadian dollars
in debt. Petrominerales'
shareholders will receive 11
Canadian dollars a share.
They will also get one share
in an entity being formed to
hold Brazilian assets, which
will be capitalized with 100
million Canadian dollars in
cash.
The price was a 42%
premium to trading levels
and about 40 times reserves -
compared to the 20 times level
typical of the sector.
"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

10 L ATINFINA NCE.COM -November/December 2013

Value $m
30,864
26,624
23,893
20,763
19,866
18,241
14,276
10,691
9,860
8,125

42
17
14
21
30
6
2
15
30
16

111,606

Total

# Deals

1,236

Investment banking fees revenue, year to Oct 25
JPMorgan steps forward
Rank

Bank

1
2
3
4
5

Revenue $m

Credit Suisse
Citi
JPMorgan
Itaú
BTG Pactual

152
126
121
117
115

9.29
7.71
7.37
7.14
7.05

1,637

Total

% Share

100

Source: Dealogic; Includes M&A, ECM, DCM and loans fee revenue

cost savings and the value of
the pipelines [included in the
deal]," said José Darío Lozano,
director of equity research at
Alianza Valores.
Rubiales is funding the deal
with cash on hand and a $1.3
billion one-year bank loan

For daily updates on
M&A, visit:
latinfinance.com

from advisor Bank of America
Merrill Lynch, and from Citi,
HSBC and Itaú. The buyer
plans to pay down some of
the debt through a sale and
leaseback on all or part of
Petrominerales' pipelines
stakes. LF

For other M&A news, including
Colombia's privatization of
Isagen, Petrobras' asset sales, and
Hochschild's asset consolidation
plan, see latinfinance.com.
http://www.latinfinance.com http://www.latinfinance.com http://www.LATINFINANCE.COM
LatinFinance - November/December 2013

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