TTR Dealmaker Q&A – Paula Muñoz Romero (Muñoz Romero Asesores)

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TTR Dealmaker Q&A

December, 2015

Fluiconnecto acquires a 35% stake in Man-Par with option to acquire 75%

USD 686.5m

Paula Muñoz Romero 
Muñoz Romero Asesores

On 11 September Netherlands-based hydraulic hose manufacturer Fluiconnecto closed the acquisition of a 35% stake in Man-Par, a distributor of its products located in Bogotá, Colombia. Paula Muñoz of Muñoz Romero Asesores was legal advisor to the buyer for this deal in which Fluiconnecto acquired effective control with an option to buy the remaining shares of the selling shareholders in 2017.

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Q: How did you land this mandate?

A: It was a referral from Gómez-Pinzón Zuleta Abogados. One of the partners there recommended me to Fluiconnecto. I believe they had a conflict of interest.

Q: How did the buyer identify the target?

A: Fluiconnecto sold its products through Man-Par already and was interested in acquiring shares in the company in order to establish a greater presence here. Fluiconnecto approached the family shareholders who were interested in selling, so we began discussing a transaction.

Q: When did the negotiations begin?

A: We began discussions around February 2014, but the legal aspect didn’t begin until September 2014.

Q: Why did the buyer opt to acquire the company little by little, rather than acquire 100% outright from the start?

A: Fluiconnecto wanted to see the results of the company with their input. It expects Man-Par to achieve great results and if it does then they intend to exercise their call option to acquire the remaining shares of the selling shareholders.

Q: How did the worsening economic situation in Colombia impact the transaction?

A: We thought that it would impact it, but it didn’t. It hasn’t been as good a year for transactions as we thought it was going to be, but in the end Fluiconnecto was so interested in coming here. Foreign investors are still interested in investing here, as they consider Colombia to be a good country for the future and Fluiconnecto thought it a good time to invest now. Maybe things aren’t as profitable now, but Fluiconnecto took a long-term view and expect it to improve in the next few years.

Q: How did Fluiconnecto ensure its place as master of Man-Par’s fate while holding only a minority stake?

A: Fluiconnecto has control of the company through a shareholders agreement. The idea is to purchase more shares in order for them to get 100% of the selling shareholders in the next two years. Fluiconnecto has the right to purchase such shares and has agreed on the price, it’s just a question of Fluiconnecto to exercise this option.

Q: To what extent were antitrust concerns a factor in this transaction?
A: We had to ask for permission from the antitrust authority as Fluiconnecto was already distributing its products here. It already participated in the market and though it was a concern since it already had some clients here, it wasn’t difficult to demonstrate to the regulator that the deal wouldn’t have adverse impacts on the market.

Q: What is Man-Par’s most significant client base and how does Fluiconnecto plan expand?

A: Man-Par sells parts that Cerrejon needs to operate. That’s the biggest client, which needs those parts constantly regardless of how much coal they extract or sell. The company is aiming to get a foothold in the oil and gas market as well as other interesting markets, but hasn’t been concentrating its efforts on doing it up to now. Fluiconnecto will bring its experience here and make a commercial impact here in Colombia with a new commercial model to get new clients and to get into the oil and gas market as well as other markets.

Q: What compelled Man-Par shareholders to pursue a sale?

A: What I understand is that Fluiconnecto approached them. The shareholders are the daughters of the original owner. They didn’t have as much experience as their father in the business and were really interested in selling some of their shares to Fluiconnecto. The sellers had an interest in putting the company in good hands and the buyer approached at a time when the country wasn’t getting as much foreign investment, so it represented a good opportunity for an exit.

Q: What went into the due diligence process?

A: The seller changed lawyers three times in the process. Philippi Prietocarrizosa & Uría conducted an internal due diligence process and shared it with the buyer. Then the seller changed to another local firm before finally retaining Brigard & Urrutia to close the deal. Fluiconnecto hired us to do the due diligence mostly in the foreign trade zone assets and tax due diligence, and used internal attorneys for labor and basic corporate due diligence, which of course we had to verify and confirm when drafting the share purchase agreement.

Q: Why are mid-market European companies still confident in Colombia despite the economic downturn in the past 12 months?

A: Colombia has stable laws, they are sure of what is going to happen and how things will work out, except for the tax law, the rest of it is kind of stable. Tax issues tend to vary from one administration to another and it’s something that changes in every single country. Though this impacts acquirers like Fluiconnecto, it’s likely something that they are used to.

Q: What does this entry in Colombia represent within the context of Fluiconnecto’s ’s regional growth in Latin America?

A: Fluiconnecto views Colombia as one of its entry points into Latin America, since it already operates in Argentina and Peru. It intends to grow profits at the company to present itself on a strong footing within Latin America. We believe Fluiconnecto will likely look at other acquisition opportunities regionally.

Q: What stood out for you in this transaction to distinguish it from other M&A deals you’ve worked on?

A: The fact that the sellers changed their lawyers three times was really challenging. These kinds of deals are quite complicated, and if you don’t have a sophisticated counterpart it’s quite difficult to deal with sellers when they aren’t used to this kind of transaction. The negotiation with the sellers was really complicated; they didn’t understand how it could work through a contract giving the buyer control in a minority stake acquisition. It is quite common practice if the financial contribution is going to be really significant. The buyer is also granting financing in the form of loans, so the financial effort from Fluiconnecto is really significant and that’s why it is getting control even before purchasing a majority share.

Q: How was the purchase price arrived at?

A: Fluiconnecto valued the target and started negotiating the price with the sellers – this was an unusual way of handling the deal from a seller’s perspective. We tried to make everything as fair as possible and as simple as possible. They only hired Brigard & Urrutia in February or March 2015 as their final legal advisor for the deal.

Q: Did the difference in corporate culture impact the deal in any way?

A: Because of the relative size of both companies, the way Man-Par handled their business was very different, but because Fluiconnecto was already working with Man-Par as a distributor of its products, it was already familiar with the way they handled the company and the different ways of doing business didn’t prove to be an obstacle.

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TTR Dealmaker Q&A – Alan Klein ( Simpson, Thacher & Bartlett)

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TTR Dealmaker Q&A

October, 2015

Owen-Illinois acquires Vitro´s glass container business

USD 2.15bn

Alan Klein
Simpson, Thacher & Bartlett

Alan Klein, co-administrative partner at Simpson, Thacher & Bartlett, led the legal team that advised Owens-Illinois in its USD 2.15bn all-cash acquisition of Vitro’s glass container business that closed on 1 September. The acquired assets include five plants in Vitro’s home market, Mexico, one in Bolivia and the seller’s distribution lines in the US.

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Q: How did Simpson, Thacher & Bartlett land this mandate?

A: We’ve worked with Owens-Illinois for over 25 years, since KKR acquired Owens-Illinois in the late 1980s. We were one of the firms involved in the acquisition and financing of that deal. I started working with Owens-Illinois in the late ‘80s and since that time have helped them with innumerable acquisitions and divestitures, as well as prospective transactions.

Q: How long was Vitro’s glass business in the sights of Owens-Illinois?

A: It’s something Owens-Illinois has been thinking about going back several decades.

Q: Why was this collection of assets attractive and strategic for the buyer?

A: It’s a natural geographic extension for Owens-Illinois because they have a strong position throughout the US, Canada and Latin America, so it’s a natural fit. It’s a natural combination from Owens-Illinois’ perspective. Vitro was a leading container and glass manufacturer in Mexico and filling that gap is something Owens-Illinois has been interested in for a long time.

Q: Why was this the right time to launch a bid?

A: It was a point in time when the buyer and the seller were able to agree on a price, which they’d never been able to do before. Vitro’s glass manufacturing business was performing well, and Owens was in a position to afford to pay the price that Vitro was looking for. There was a negotiation and they were able to reach an agreement on price.

Q: What were the obstacles to the deal closing in past attempts?

A: When one party was ready the other wasn’t, and vice versa.

Q: What made this transaction particularly challenging?

A: It’s a carve-out from the rest of Vitro’s business. My experience has been that whenever you’re buying a part of a company where the assets have been intermingled with other parts of the seller’s business, you have to sort of tease that apart and unwind everything. They had a lot of restructuring to do, they had to move things around internally and that leads to a whole host of approvals needed from vendors, from landlords, and then there’s a whole host of associated tax issues. It’s like taking a box of puzzle pieces, throwing them on the ground and then putting them back together — it’s a painstaking process.

Q: How long did the transaction take to complete?

A: Once we were able to get an agreement on terms, we were actually able to close it by the beginning of September, so it only took three-and-a-half months from the announcement date of 13 May, which is quick. It took a lot of work and some luck to get it done so quickly.

Q: How did your team of 20 attorneys navigate these challenges?

A: It required close collaboration with the seller’s counsel and a lot of attention to detail. Corporate, intellectual property, tax and real estate, were all key parts of the team.

Q: To what extent was antitrust a consideration?

A: Competition was certainly involved and they did a great job because we got approvals in the US and Mexico in relatively short order. Glass is a funny thing, glass bottles in particular. They’re heavy and fragile, and consequently most of Vitro’s production is sold in Mexico. There was no second request from the FTC and the Mexican authorities got quite comfortable with it as well. Though Owens-Illinois is a major producer in the US, both US and Mexican authorities had no objection, for the reason that the production from Mexico is overwhelming used in Mexico. It doesn’t change the profile of either market. Owens is stepping into Vitro’s shoes in terms of manufacturing glass containers. It shouldn’t have an effect on the Mexican market.

Q: Why did the buyer opt to finance the transaction with cash?

A: Owens-Illinois was concurrently doing some financings in the public market as well and they had enough cash to do it. They were doing other work on their capital structure. They were taking additional risk with the deal, but Owens was confident that it had enough resources and could keep its capital structure in a healthy, rational state.

Q: What does the deal represent within the context of Owens’ global growth strategy?

A: It’s a piece that’s been missing. Owens is a very global business, with strong presence in the US and Canada, and a strong presence in Latin America. This transaction filled a gap.

Q: What made this deal stand out from other recent transactions you’ve worked on?

A: It’s certainly one of the largest acquisitions in Mexico of an industrial business for sure, and it’s something that’s been on Owens-Illinois’ radar screen, and as a result, our radar screen, for a long time, literally 20 years, as a potential transaction.

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TTR Dealmaker Q&A – Sergio Michelsen (Brigard & Urrutia)

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TTR Dealmaker Q&A

September, 2015

Almacenes Éxito acquires 50% stake in Ségisor and 100% of Libertad

USD 1.86bn

Sergio Michelsen
Brigard & Urrutia

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Sergio Michelsen, a partner at Brigard & Urrutia in Bogotá, led the Colombian legal team that advised Casino Groupe on its sale of a 50% stake in France-based Ségisor, thecontrolling entity of GPA in Brazil, and a 100% stake in Argentina-based Libertad to Colombia’s largest retailer, Almacenes Éxito, for USD 1.86bn

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Q: What was each party seeking to accomplish in this transaction?

A: In the case of Éxito, it had committed to regional expansion and thus this acquisition enables it to become a true “multilatina” and comply with such commitment. In the case of Casino, it can unify the management under Éxito and ensure that the companies in the four countries of South America where it has a presence, Brazil, Colombia, Argentina and Uruguay, extract all the synergies as well.

Q: How did Brigard & Urrutia land this mandate?

A: We have been advising Casino with all its Colombian and other Latin American business for almost 20 years. We initially advised Casino when it acquired a 25% stake in Éxito and a year after when it acquired a controlling interest in Cativen in Venezuela. Subsequently, several years after, the Venezuelan government nationalized Cativen and we advised Casino on the implications that such event would have on its Colombian operations. In the meantime, we advised Casino on its consolidation of control in Éxito. We have also advised Éxito, particularly in connection with the acquisition of the second-largest retail company in Colombia, Carulla, and last year in the acquisition of another large retailer, Super Inter. More recently we advised Casino on the sale of its participation in the leading retail company in Uruguay, which was also sold to Éxito.

Q: What did this transaction entail in terms of resource allocation?

A: We had the M&A practice group primarily involved with the support of our corporate, capital markets and tax practice groups. We also coordinated closely with French, Brazilian and Argentine counsel.

Q: What made this deal unique from other transactions Brigard has advised on?

A: Since this was a related party transaction, we were very keen on making sure that the transaction fully complied with Colombian law and good corporate governance practices. To such effect, counsel to Casino and Éxito negotiated on an arm’s length basis, further ensuring that the transaction would be beneficial to all parties involved. As an example, the transaction was approved by Éxito’s non-conflicted board members and by its shareholders assembly. The parties engaged independent advisors, provided all the shareholders with the relevant information and Éxito further obtained a fairness opinion from Merrill Lynch. In this respect I would say that this was not the typical deal where you look after the specific interest of your client, but rather we had to consider the interest of all parties involved.

Q: In what ways does this transaction advance Éxito’s regionalization program?

A: Éxito now has a stake in Brazil’s largest retailer, Pão de Açúcar, as well as in interesting retailers in Uruguay and Argentina. In terms of sales, Éxito will be the largest company in Colombia in terms of sales and can now be called a true “multilatina” with its stake in in Brazil’s largest retailer, the largest in Uruguay, and in Libertad in Argentina.

Q: How will the transaction impact Éxito’s profile as a potential target for the likes of Wal-Mart?

A: I do not believe that Exito is within Wal-mart’s plans or that its shareholders want to sell the company. However, Éxito has expanded its footprint in a very significant way and this should make it very appealing to any global retailer. By being the leading retailer in Brazil, Colombia and Uruguay with a significant presence in Argentina, Éxito becomes the leading retailer in South America.

Q: What other transactions do you expect to stem from this deal?

A: Now that Éxito is a leading retailer in the region, whenever an opportunity arises it will be called to the table. In Central America, the retail market can be expected to consolidate, while in Chile and Peru consolidation will also happen, though it could take longer given the fact that the Chilean retailers are already entrenched. Éxito will be in a position to seek those opportunities when they arise. I would say consolidation is certainly going to occur in Central America where Wal-Mart has quite an advantage. The smaller forces are coming together and the logical next step would be selling to a larger regional player, and at that point Éxito would be very well positioned to do an acquisition. In Chile it’s different, it’ll take much longer. In Peru that’s going to take longer as well, but eventually those two markets should be consolidated.

Q: To what extent has Éxito demonstrated an appetite for the wholesale club format?

A: I haven’t heard that much discussion in this context; I’ve seen more of an interest in e-retail. In that respect, Pão de Açúcar is the leader in Brazil and Casino also has its own platform with C-Discount. The synergies among the members of the group will ensure that e-retail will be quickly deployed in the countries where they have a presence. A couple of years ago I read an interview with the CEO of Wal-Mart when he was asked, “Who is your biggest competitor?” He immediately said Amazon. While Amazon has just a fraction of the sales of the big global retailers, it is clearly a leader in the e-retail business and thus a company to watch. Therefore, leapfrogging from the traditional retail to e-retail seems a very logical path and in this respect the transaction will add substantial value by taking advantage of a very good e-commerce platform in Brazil that can be applied to other regional markets.

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TTR Dealmaker Q&A – Sergio Díez (Cariola Díez Pérez-Cotapos & Cía Abogados)

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TTR Dealmaker Q&A

August, 2015

EPM acquires Aguas de Antofagasta from Inversiones Punta Rieles

USD 965m

Sergio Díez
Cariola Díez Pérez-Cotapos & Cía Abogados

Sergio Díez, partner at Santiago, Chile-based Cariola Díez Pérez-Cotapos & Cía Abogados led the local legal team that advised EPM on its USD 965m acquisition of Grupo Luksic’s water production and treatment company, Aguas de Antofagasta (ADASA), held by Inversiones Punta Rieles.
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Q: What did this transaction represent for the firm?

A: This transaction had special importance due to the many angles of interest that had to align to close the deal. Initially we had to provide assistance to EPM on an efficient acquisition structure, from legal, tax and regulatory standpoints, especially considering the acquisition was of a regulated entity. In parallel, an extensive legal and financial due diligence process took place in connection with a complex and huge corporation and its business. Finally, we should point out that between the date EPM presented its binding offer and the date in which the SPA was signed, only a short period of time elapsed, and consequently, it presented a very challenging scenario for our lawyers due to the complexity of the different areas involved and the lack of information and time.

Q: What made this deal stand out from other M&A mandates?

A: Each transaction is unique and has its own complexities. In this particular case, the transaction distinguished itself from others, firstly, for its USD 965m value. The fact that EPM had a complete staff of advisors was also impressive. Finally, the variety of angles from which the acquisition had to be deeply analyzed also generated a special complexity not seen in every transaction.

Q: What challenges did the deal present for the firm?

A: As a relevant consideration, the organizational, regulatory and environmental analysis of ADASA was very complex due to the fact that its business is linked with the prior operation of a public company, is heavily regulated under an agreement with public concessions company, ECONSSA, and supervised by various regulators. Also, the transaction involved all kinds of assets, rights and permits, owned by ADASA and by ECONSSA. Finally, ADASA’s operation is governed by both regulated and non-regulated agreements, and affects services rendered in different locations.

Q: How did the deal demonstrate the firm’s competencies?

A: Cariola was able to adivise EPM through a considerable group of lawyers, with different specializations, such as corporate, regulatory and environmental, sanitation, tax, labor, real estate, financial and intellectual property, among others. This coordinated work allowed EPM to obtain a complete overview of the company from its different scenarios. Working together with other EPM advisors and with the seller’s consultants, we were able to find and provide solutions for different situations in order to move forward and close the acquisition.

Q: What does this transaction represent for the sector itself?

A: We think this transaction is positive for the sector, especially considering EPM is one of the most important companies in Colombia, and moreover, the most important utility in the country. Also, EPM has investments in many countries of Latin America in water, sanitation, energy and telecommunications, among other sectors, and has always distinguished itself for great service and management.

Q: What foreign ownership limits were relevant to this transaction?

A: In Chile, there are no ownership restrictions for foreigners in connection with this type of resource. Nonetheless, we were able to coordinate presentations for EPM in order to explain the regulations currently in place governing water resources and water rights, while also anticipating future amendments to the water code.

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TTR Dealmaker Q&A – Moshe Sendacz (Machado, Meyer, Sendacz e Opice Advogados)

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TTR Dealmaker Q&A

July, 2015

Telefónica acquires GVT from Vivendi

EUR 7.5bn

Moshe Sendacz
Machado, Meyer, Sendacz e Opice Advogados

On 28 May, Spain’s Telefónica closed the acquisition of Curitiba, Brazil-based triple-play provider GVT from France-based Vivendi in a transaction worth EUR 7.5bn. Moshe Sendacz, a founding partner at one of Brazil’s leading M&A firms, led the team that advised the buyer on this monumental deal.
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Q: Why was your firm selected to act on behalf of Telefónica in this transaction?

A: It was a natural selection because we have been assisting the Telefónica Group since the privatization of Telebras in 1996-1997. We’ve been assisting Telefónica in all the transactions it carries out in Brazil, including when it competed for GVT and lost to Vivendi in 2009.

Q: What expertise did Machado, Meyer, Sendacz e Opice bring to the table?

A: The deal required expertise in various areas, with one of the most challenging being regulatory. Our capital markets practice played an important role in a follow-on issuance involved in the GVT deal in the amount of USD 5bn in shares, which was entirely subscribed. This was an overwhelming success at a difficult time in Brazil’s capital market. It was a very complex deal for the firm’s M&A practice, as Vivendi received part of the purchase price in cash, and part in shares of Telefônica Brasil through the merger of GVT’s shares into Telefônica Brasil; a portion of Telefônica Brasil shares thus received by Vivendi were subsequently exchanged by Vivendi with Telefónica for shares held by Telefónica in Telecom Italia, thus allowing Telefónica to begin exiting its investment in Telecom Italia and its indirect ownership in TIM Brasil. Our tax team also played an important role in solving, in an efficient manner, several tax issues faced in all aspects of the deal. The simultaneous closing in São Paulo, Paris, Milan and Madrid contributed to the complexity of the deal.

“It was a very complex deal for the firm’s M&A practice, as Vivendi received part of the purchase price in cash, and part in shares of Telefônica Brasil through the merger of GVT’s shares into Telefônica Brasil”

Q: What concerns did the regulators raise?

A: The Brazilian regulators forced Telefónica to exit its stake in Telecom Italia because of the condition barring it from indirectly holding shares in two competing operators in Brazil, namely Telecom Italia’s subsidiary TIM Brasil, the country’s number two player in mobile with 27.1% market share, and Telefônica Brasil, the market leader with 28.5% market share in mobile services. The Brazilian regulators were also concerned about that portion of the deal that would result in Vivendi receiving, as part of the GVT purchase price, shares of Telefônica Brasil, thus becoming a direct shareholder in Telefônica Brasil and an indirect shareholder in TIM Brasil as a result of the swap of shares between Telefónica and Vivendi. These two main issues required a complex negotiation with Brazilian antitrust authorities and telecom regulator, Anatel.

Q: How long did the negotiations with regulators take to conclude?

A: We started to approach the local authorities immediately after the execution of the SPA in September, 2014, and before making any required filings. Negotiations with the regulators commenced in October, 2014 and concluded in March, 2015.

Q: Telefónica had been the expected buyer of GVT in 2009. What went wrong then?

A: The seller decided to accept Vivendi’s offer for the controlling shares, and Telefónica gave up on the public tender offer it had launched to acquire GVT. In 2014 Vivendi manifested its desire to exit Brazil and Telefónica decided to present an offer for GVT. Vivendi also received an offer from Telecom Italia for the same asset. Telefónica’s offer conditions were much more attractive, and Vivendi decided to proceed with Telefónica. The purchase agreement was negotiated in record time in just two weeks: one week in São Paulo and one week in Paris, concluding with the signing on 18 September, 2014.

“The purchase agreement was negotiated in record time in just two weeks: one week in São Paulo and one week in Paris”

Q: What prompted Vivendi to sell GVT?

A: Telecom is a very capital-intensive business; it needs investment all the time. Vivendi was small relative to other players in the market to compete effectively and the company required more capital to grow the business.

Q: Apart from being extremely profitable, what made this asset so attractive for Telefónica?

A: It would complement geographically and also GVT is very strong in broadband. It has a very attractive fiber network and a strong presence in the corporate market.

Q: Why is GVT so profitable?

A: It was very well structured and managed by its CEO, Amos Genish, one of the founding shareholders of GVT. He’s now the top telecom guy in Brazil and has accepted the position of CEO at Telefônica Brasil. He is the leading executive at Telefónica Group in the country, which GVT is now part of.

Q: How was a multiple of 14.86x on 2013 EBITDA arrived at?

A: The telecom market is undergoing consolidation in Brazil. GVT was at the point where it would start to lose market share, but it represented synergies for the buyer. It was one of the few assets in play in a consolidated market; there’s a price in that. There was virtually no geographical overlap. The regulatory issue was in the crossed ownership of Telefónica and Telecom Italia and Vivendi and Telefônica Brasil. The antitrust and telecom authorities approved the merger of operations with no relevant objections, and more importantly, the price paid by Telefônica Brasil to Vivendi was supported by appraisals and opinions prepared by investment banks by using criteria typically adopted in deals of this nature.

Q: What does this transaction represent for the telecom sector in Brazil?

A: Telefônica has now improved its offering mainly in Internet and data services thanks to GVT’s strong fiber network. It’s a strong and solid company. It was already the largest telecom operator in Brasil. GVT was not a competitor. In fact, one of the issues raised during the negotiations with the regulatory authorities was that it could become a good competitor, because it was growing, but it was not the intent of Vivendi to invest heavily to realize that growth, so essentially the competitive landscape remains the same after the deal. The telecom market is dominated by Telefônica, TIM Brasil, Claro and Oi, which together control around 95% of the market. I believe there is no room for more operators. The transaction won’t impact pricing for consumers, but Telefônica can now compete in areas where it was not a major player previously.

Q: What made this transaction unique among deals your firm has advised on?

A: First, for the consideration involved. This was the biggest M&A transaction in Brazil, in terms of price, of the past 35 years. Secondly, owing to the complexity of the transaction, it was important for the firm to be involved. It was very important for the firm to strengthen its professional relationship with Telefónica and build on the confidence the country’s largest telecom has in us so that we can continue assisting the company in the years ahead.

“This was the biggest M&A transaction in Brazil, in terms of price, of the past 35 years”

Q: How did the firm celebrate the closing?

A: With a lot of Champagne. Simultaneous parties were held to celebrate at Telefónica’s country headquarters in Madrid and here in São Paulo.

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