LatinFinance - January/February 2015 - 58

CROSS-BORDER M&A DEAL

MMG/Las Bambas
This large investment
came as doubts grew over
mining industry profitability, securing investment
in a project that's pivotal to
Peru's economy
Bankers focused on Latin America say
the prospects for cross-border mergers
and acquisitions, especially in Brazil, are
improving. Foreign direct investment and
private equity will step in for public stock
markets to provide capital, they believe.
Indeed, some foreign investors are
dismissing LatAm's slowdown as a shortterm issue, and are attracted by falling
valuations. US private equity firm Advent,
for example, announced in November
investors had committed $2.1 billion to
what it described as the largest ever LatAmdedicated fund, with the majority intended
for Brazil.
At the end of the September, when the
period of these awards ends, there were
already some large deals in the works,
especially in the telecoms sector. One was
the $9.8 billion acquisition of Brazilian
broadband and pay-television provider
GVT by Spain's Telefónica, a deal with an
estimated $5.6 billion in synergies.
M&A deals already closed included
the $3.3 billion acquisition of CFR
Pharmaceuticals by US firm Abbott
Laboratories, a $1.6 billion acquisition of
Canada Bread by Mexican baker Grupo
Bimbo, and Coca-Cola Femsa's $1.8 billion
acquisition of Brazilian bottler Spaipa.
However, the biggest deal - by far -
to close during the 12 months to end of
September was the $5.85 billion cash
acquisition of Las Bambas copper mine in
Peru. A consortium led by China's MMG
Limited bought the mine from Swiss
commodities firm Glencore. The seller
had acquired the project as part of its
merger with Xstrata, another Swiss natural
resources firm. It used the proceeds to
repay debt.
The buyer was a consortium of Chinese
state-backed firms comprising MMG, a
subsidiary of state-owned China Minmetals,
alongside Guoxin International Investment

58 LATINFINANCE.COM - January/February 2015

Corporation and CITIC Metal. They
acquired 62.5%, 22.5% and 15% of the mine,
respectively. MMG will be the operator.
The purchase was made in cash and
funded by loans from a group led by China
Development Bank, alongside Industrial
and Commercial Bank of China (ICBC) and
Bank of China (BOC).
Bringing in an investor for a purchase of
this value at a difficult time for the mining
sector - when even Chinese acquirers have
been less voracious in their appetite for
deals - was no small achievement.
The deal helps secure China's metal
supply and is one of the biggest Chinese
mining acquisitions in history. But
it also helps secure investment in a
transformational project for the Peruvian
economy. Indeed, this is one of the biggest
mines in construction anywhere in the
world. Production is scheduled to start in
early 2016.
Bank of America-Merrill Lynch and Citi
were M&A advisors to MMG, while BMO
Capital Markets and Credit Suisse advised
Glencore. Dentons, Linklaters, Rodrigo,
Elías & Medrano, and White & Case advised
on the legal side. LF

DOMESTIC M&A DEAL

Kroton/Anhanguera
A merger of two companies with no control groups
created a benchmark for
M&A in Brazil in education
and other industries
The potential to thrive in a weak
economy means education is one of the
hottest sectors on Brazil's stock market.
Government incentives, plus a tendency
for people to go back to school if they lose
their jobs, will continue to drive education
stocks, analysts reckon.
Meanwhile, good cash flow and a
fragmented competitive landscape mean
that education is one of Brazil's ripest
industries for M&A over the coming years,
bankers say. Even the biggest player,
Kroton Educacional, plans to make
new acquisitions, according to its chief
executive, Rodrigo Galindo.
"There is a lot of space to consolidate in
the post-secondary space," he says.

RODRIGO GALINDO, KROTON

"WITH SCALE, WE CAN
MAKE MORE INVESTMENTS IN QUALITY
AND TECHNOLOGY"
Few of those potential deals are likely
to surpass Kroton's July 2014 merger with
its biggest rival, Anhanguera Educacional.
The transaction created the world's
biggest for-profit education company by
market capitalization (around $8 billion).
It also created precedents for M&A in
Brazil in education and beyond.
The companies merged through a share
swap - the new company is 66.5% owned
by Kroton shareholders and 33.5% owned
by Anhanguera shareholders. Kroton
issued 135 million new shares at a ratio of
0.3097 for each Anhanguera share. BTG
Pactual advised Kroton, while Itaú BBA
advised Anhanguera. Mattos Filho and
Barbosa, Müssnich & Aragão were legal
advisers.
It was the first education merger
approved under Brazil's 2012 antitrust
framework, says Galindo. During
the months it took for approval to
come through, the companies' share
performance sharply diverged. Kroton's
expected earnings per share rose,
while those of Anhanguera declined.
Furthermore, the regulator told Kroton
to divest its distance learning unit,
Uniasselvi, as a condition for the merger.
To satisfy Kroton's shareholders
after the share price moves, Galindo
had to persuade Anhanguera's board to
renegotiate the terms of the deal. A year
earlier, the pair had agreed to a ratio of
0.45 Anhanguera shares for each Kroton
share. "The swap ratio made no sense
under the new share prices," he says.
The deal was also the first Brazilian
merger in any sector between two listed
companies without control groups,
according to Mattos Filho. After the terms
had been renegotiated, there was less
certainty the deal would be approved
by shareholders - even though the
merger agreement stipulated the talks
were exclusive. New clauses, such as
an agreement not to engage in a hostile
takeover, were added.
Ultimately, the deal was well received.
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