The Deal, USA, February 26, 2008

As we continue our reporting on dealmaking in emerging markets in advance of Corporate Dealmaker's March issue on the topic, we turn to Brazil. The country has been most active among its Latin American peers in M&A, and its hot sectors of late have mirrored those where worldwide consolidation has been the trend. Cross-border deals have contributed widely to the activity, and when cast against the rest of Latin American, Brazil looks particularly active in M&A. 

The Latin Business Chronicle in January issued its annual report on M&A in the region. It found: "Overall, the value of M&A deals barely increased, but the number of deals grew strongly. And while announced M&A deals in Mexico fell, they grew in Brazil." Indeed, according to Reuters citing Thomson Financial data in August, Citigroup Inc. was the country's top M&A adviser for 2007 and just eight months into the year had nearly matched its 2006 advisory totals in Brazil. But the effect of the now-global credit crunch has yet to play out.

Perhaps unsurprisingly deal activity has been strong in industries where there has been global consolidation. To get a sense of the deal climate in Brazil, consider some of the biggest transactions involving Brazilian companies in the last calendar year alone:

MINING, METALS

Most recently, Brazil's Cia. Valo de Rio Doce reportedly raised its offer for Xstrata plc and is willing to pay 45.4 billion pounds, or $88.5 billion for its Anglo-Swiss peer, according to a report in O Estado de S. Paulo Feb. 21. (The target in December acknowledged it was willing to talk about M&A with its peers.)

In November, Houston-based Quanex Corp. unveiled plans to sell its vehicular parts units to Brazilian steel giant Gerdau SA, Latin America's biggest steelmaker, in a deal valued at nearly $1.7 billion.

TELECOM

In July, Telecom Italia exited Brasil Telecom through a 515 million euro ($768 million) sale to three Brazilian pension funds. As The Deal's Phineas Lambert noted: "Telecom Italia also owns TIM Brazil, the second-biggest player in the Brazilian cell-phone market after Vivo Participacoes SA, a joint venture between Telefonica SA and Portugal Telecom SGPS SA. Telefonica is trying to buy out Portugal Telecom, and investors had expected the Spanish giant to make a play for TIM Brasil." And he pointed out in June: "Portugal Telecom SGPS SA opened talks with Brazilian telecom Tele Norte Leste Participacoes SA, also known as Telemar, and may make an offer for the Rio de Janeiro-based operator."

More deals in Brazil's telecom market could be forthcoming.

GROCERY RETAIL

Grocery retail is another sector that has seen global M&A in recent years. In April, Carrefour SA looked poised to become the No. 1 grocer in Brazil with a deal to pay a reported 2.2 billion reais ($1.1 billion) for Atacadao Distribuicao Comercio e Industria Ltda., the owner of 34 hypermarkets.

ENERGY

And on the energy front, a consortium that included Petroleo Brasileiro SA, Brazil's state-owned oil giant Petrobras and two local partners unveiled plans in March to buy Ipiranga Group, the country's No. 2 oil products distributor and refiner in a $4 billion deal. The move served to further concentrate ownership in petrochemicals and oil products distribution, Mike Kepp wrote for The Deal at the time.

For 2006, energy deals topped the M&A activity in Latin America and were followed by technology deals, finance, metals and mining, as Latin Business Chronicle noted. - Carolyn Murphy