September 2011 Brazil Business Review

October 6, 2011

By: Phillip Lee
Editor, Brazil Business Today

Brazilian President Dilma Rousseff enjoyed a brief moment in the global spotlight as the first woman to open the UN General Assembly on September 21. The next day, all eyes were back on the looming economic crisis as global markets plunged. Stocks on the São Paulo stock exchange tumbled 4.8% along with stocks in other emerging markets. The Brazilian real suffered as well, going from being renowned as the world's most overvalued currency to its worst FX performer in September. The government intervened quickly, using derivatives to shore up the currency. Despite this September upset, many investors are still placing a bet on Brazil for the future.


Market developments of note for foreign investors during June included:

• A nationwide bank strike which started in late September is still ongoing.


• Brazil's automotive industry experienced deceleration and temporary plant closings, effects of government efforts to tighten credit and slow the economy.


• A central bank survey showed that Brazil may miss its inflation target this year for the first time since 2003.


• In September, Brazilian mining giant Vale proposed a US$ 3 billion dividend payment to shareholders, created a new logistics company for cargo transport and announced plans to sell or lease its fleet of giant iron ore carriers.


• Brazil's civil aviation secretary said state-owned company Infraero will hold veto rights in future airport concessions.


• Brazil clashed with China again over anti-dumping issues.


• Brazil signed a law allowing telephone and foreign companies to offer pay tv services.


• Brazil increased a car tax by upwards of 30% on carmakers using a high content of imported components.

Notable M&A activity:

• M&A activity during the first eight months of the year was in line with 2010 levels and pre-crisis levels, pointing to a good year for mergers and acquisitions in Brazil.


• BP acquired the remaining 50% stake of Tropical BioEnergia, giving it full control of the Brazilian ethanol producer.


• World-leader in on-site service solutions Sodexo acquired Puras of Brasil for approximately EUR 500 million.


• Venezuela approved a joint venture between Petroleos of Venezuela and a division of Brazilian conglomerate Odebrecht known as PdVSA.


• BRF Brasil Foods entered negotiations with the French Groupe Doux for its Brazilian pork operations.


• Chiliean LAN Airlines' planned takeover of Brazilian airline TAM ran into trouble with antitrust regulations, threatening the creation of one of the world's largest airlines.


• Global technology company Thales acquired 100% of the Brazilian electronic engineering company Omnisys.


• Outsourcing and distribution group Bunzl acquired the São-Paulo based supplier of hygiene and cleaning products Ideal.


• Siemens acquired the Brazilian supplier of Manufacturing Execution Systems software Active.


• Brazil's civil aviation authority approved Brazilian airline Gol's purchase of the low-cost carrier Webjet.


• São Paulo-based Marfrig, Latin America's second-largest beef producer, announced the US$ 400 million sell of its distribution center for McDonald's to US-based Martin-Brower.


• The Brazilian steelmaker CSN canceled a EUR 543 million deal to acquire Spanish cement producer Cementos Balboa and steel assets from Spain's Grupo Alfonso Gallardo due to a breach of contract.


• The parent company of Brazilian beef giant JBS announced it will buy 100% of Rio de Janeiro-based bank Banco Matone.


• Tereos Internacional, a listed company on the São Paulo Stock Exchange, acquired a 68% stake in Brazilian company Halotek for R$ 45 million (US$ 26 million) in order to continue construction of a cornstarch plant started by Halotek.


• OGX, a Brazilian oil and gas company controlled by Brazilian billionaire Eike Batista, bought a 50% stake in a hydrocarbons exploration block in northern Brazil.


• BR Malls said it will buy a 50% stake in a shopping mall project in Espirito Santo, Brazil and invest roughly R$ 250 million in the project over a 10 year period.


• Publicly-traded company Rio Verde acquired another Brazilian company, Fosfater, as part of its plan to become the leading Brazilian fertilizer mining and development company.


• Elbit Systems of Israel and Embraer of Brazil announced the formation of an aviation joint venture.


• Brazilian private equity firm ABF committed US$ 82 million for a majority stake in a joint venture with farmland investor Agrifrima and said it will look for agricultural opportunities outside Brazil.


• A Chinese group paid almost US$ 2 billion for a stake in Brazil's nobium producer CBMM.

Other investment activity:

• Reports suggested that Brazil's national development bank could withdraw funding for iPad production by Foxconn in Brazil.


• The Brazilian steelmaker Usinas took out a five-year, US$ 750 million revolving credit line with Credit Agricole Corporate & Investment Bank, J.P. Morgan, Mizuho Corporate Bank, Sumitomo Mitsui and Bank of Tokyo-Mitsubishi UFJ.


• The Russell Global Index added Brazilian companies Abril Educacao, Brazil Pharma, Qualicorp and Technos following their recent IPOs.


• A unit of Banco do Brasil announced plans to raise R$ 1 billion (US$ 555 million) for a private equity fund focused on renewable energy projects.


• J.P. Morgan announced plans to expand its Brazilian direct custody and clearing business.


• Private equity fund 57 Stars Latin America Opportunity Fund announced an investment in the P2 Brasil Private Infrastructure Fund II.


• The Brazilian national development bank BNDES agreed to lend R$ 3 billion (US$ 1.7 billion) to expand the 3G network of Vivo, a unit of Spain's Telefonica.


• The government said Brazilian banks would not have to pay the 1% financial operations tax, or IOF, when reducing their long dollar risks.


• Brazilian mobile telephone company TIM announced the sell of shares worth about R$ 2 billion (US$ 1.2 billion) on Brazilian and international markets.


• Schroders launched the ISF Brazilian Equity fund.


• Global asset management firm Hamilton Lane announced plans to open a Brazilian office, and law firm Taylor Wessling set up a Brazil desk to focus on BRICS deal flow.


• Orient-Express Hotels refinanced its US$ 88 million loan on its Brazilian properties and will use part of the new US$ 155 million to refurbish Copacabana Palace in Rio de Janiero.


• BASF said it will invest EUR 500 million, its largest investment ever in South America, in an acrylic acid production site in Bahia.

Comments and questions: phillip@brazilbusinesstoday.com

Currently living in Brazil, Phillip Lee is a partner with Clairfield International's Brazilian affiliate. He has an MBA in Finance and International Business and has had a distinguished twenty-year career in mergers & acquisitions, strategic market entry and financial management in some of the world's fastest growing economies.