United Airlines to Buy 5% stake in Brazil’s Azul Linhas Aéreas

Azul Linhas Aéreas and United Continental (NYSE:AUL) announced an agreement on Friday under which the US company will buy 5 percent of the Brazilian company’s capital for $100 million.

Azul is the third-largest airline in Brazil and operates more than 900 daily flights in Brazil to 105 different destinations with its fleet of 145 commercial aircraft. Through the investment, United Airlines will be able to offer code-sharing flights in different regions of Brazil, along with the North and South American region

United Airlines

The partnership will also enable United to have a member in the board of Azul, offer code-sharing flights in different regions of Brazil and North and South America. The companies will also integrate their frequent flyer programs Mileage Plus, from United and TudoAzul, from Azul.

The founder of Azul, David Neeleman, told in a news conference that the main purpose of the agreement is to face international networks offered by Gol with Delta (NYSE:DAL) and by Tam/ Lan (NYSE:LFL) with Oneworld.

In between 30 and 45 days, United flights should already be integrated into the Azul systems.

Nestlé Health Science is Looking for Acquisitions, including in Brazil

Nestlé Health Science, Nestlé’s subsidiary in healthcare, is going back to shopping this year. Greg Behar, CEO of Nestle Health Science, said that they are evaluating options in the United States, Europe, China, Japan, Australia and Brazil. The target companies are those that develop products and dietary supplements used in hospitals or home health care. “I hope by the end of the year to make some acquisitions around the world. The interest is greater in countries where there is greater support of the health system”, Behar said.

Nestlé currently has 5% of its revenue coming from Brazil.

After the Merge with BG, Shell will have 20% of its Global Production in Brazil

Responsible for the biggest oil industry M&A deal in the past decade, the president of Royal Dutch Shell, Ben van Beurden, does not rule out increasing the company’s exposure in Brazil, expanding the already billionaire investment program that will be put in place following the merger with BG.

After the merger of $ 70 billion is completed, which is expected for early 2016, after regulatory approvals in several countries, Brazil will be the country with the largest stake in Shell’s production portfolio. Even with its partner Petrobras involved in a corruption scandal, the Dutch executive says it is closely watching, but trusts the technical expertise of the state-controlled company.

Beurden estimates that Brazil will account for 20% of global production of the company when some of the projects under development by the two companies

come into operation, including Libra, which Shell has 20%, and the giant pre-salt fields where BG is a partner, like Lula and Sapinhoá, to name a few. The executive points out, however, that the appetite of Shell does not stop there and is willing to increase its presence in Brazil. He does not rule out participating in the 13th Round of the National Petroleum Agency (ANP), scheduled for October.

“I believe that the fundamentals of Brazil are very strong and, particularly, if you look from our perspective, we are investing in a world-class resource. We have to be optimistic. And I am.” he said, concluding that he will “look seriously” to the ANP auction data.

Shell chose Brazil for the annual meeting of its board of directors and the executive committee. A testament to the appetite of the Anglo-Dutch company with the country is that Brazil should stay out of the sale of $ 30 billion of assets, planned program to take place between 2016 and 2018.

Speaking to newspaper Valor Economico, Beurden listed projects in the country, including Raízen distributor partnership with Cosan, and explained that investing in the Libra auction came from the realization that Shell’s participation in E&P was small in the country.

“We always had the perception that our presence was not big enough, considering the size of the country, its reserves, and also due to its geology. We thought we needed to be more exposed to Brazil and the deal with BG will fix it.”

Shell invested $ 35 billion in 2014, largely on the company’s organic growth program. In 2015, the plan is to reduce the investment through cost cutting, forced by falling oil prices.

“We want to take a little advantage of the supply chain weakness. We are putting off investments, renegotiating contracts and, of course, questioning ourselves about some projects”, he said. “But we’re still looking at more than $ 20 billion investment in 2015. In 2016 and beyond it’s hard to predict because we have to consider the portfolio of Shell and BG, combine the two and decide which areas to prioritize.”

It is a fact that Shell will sell some assets, but Beurden ensures that “there will no fire sale”. He said Shell will be investing, with annual program of $35 billion to $40 billion. The expectation for the long term is that oil prices remain in the range of $70 to $90 per barrel. Yesterday a barrel of Brent crude closed at US$ 63.34, for example.

On the asset sale program, the executive said that two main areas, that even justified the merger with BG, will be left out: the areas of exploration and production in deep waters and the integrated gas business, as the company refers to the projects of Liquified Natural Gas (LNG).

The oil and gas projects of unconventional sources should go through further scrutiny. The involvement of Petrobras in what is already one of the biggest investment corruption scandals in the world was discussed before the offer for BG, which is relevant partner of the state-controlled company in the pre-salt.

Beurden says it is “uncomfortable” to read the news involving the Brazilian oil company, but says that as a partner of Petrobras in Libra, Shell did not notice any side effects on the projects.

“Of course when the agreement with BG completes, Petrobras will be an even greater partner. We discussed this a lot with our board before presenting the proposed merger and take a fundamental decision, based on the fact that Petrobras is very important for Brazil. It is a company we know well from a technical and commercial point of view and regard it as a first class company on the technical expertise and competence”, he said.

The executive also said that it was considered the possibility to involve BG in the corruption investigations, since the British company is a partner of the pre-salt areas where took place the projects led by Petrobras’ Service Board, under Renato Duque (arrested by the police) and the snitch Pedro Barusco (head of engineering).

“Up until now, this is clearly not the case. But it is very difficult to have a clear vision. It’s still too soon and you never know what else can come from this investigation”, he said. “We did a due diligence with our counterparts in BG after we discussed the commercial terms and I can say that was the first question we asked. And of course one can only give guarantees based on what they know. And I don’t know what I don’t know. But so far, there is no concrete indication of risk [of BG involvement]”, he said.

Admitting concern over delays in platform delivery schedules, Beurden said the bid for BG suffered a “discount” on the basis of identified problems, which were not enough to stave off Shell. “Our business, in a sense, is risk management. So, we may have surprises, we may have some negative events, but in this context, it’s no different from any other project”.

CVS Puts Negotiations for Acquisition in Brazil on Hold

American pharmacy chain CVS has put on hold the negotiations for acquisition of DPSP group, owner of pharmacy chains Pacheco and Drogaria São Paulo, after the multinational decided to hold on plans of further acquisitions, according to a party close to the companies. CVS still considers the business as a strategic and interesting asset, therefore, the possibility that the transaction could be closed in the future is not ruled out.

CVS is holding a bit on acquisitions after the two large recent ones in a very short period of time, in which they spent US$ 12 billion and raised the debt/EBITDA ratio to 3.2. Their target is 2.7. They need to digest these acquisitions better and reduce the effects on its debt.

With R$ 6.1 billion in revenue last year, group DPSP has around 950 stores in Brazil. CVS already owns the chain Onofre, with 47 stores. According to sources, the value of the acquisition is around R$ 6 billion (approximately US$ 2 billion), same value paid by CVS to acquire the Target pharmacies.

Brazilian pharmacy retail market is going through consolidation in recent years and this consolidation has created two giants Raia Drogasil (RADL) (with R$ 7.4 billion in revenue in 2014) and DPSP. The market still offers a lot of opportunities for consolidation, given the large amount of small chains and even family owned stores.

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TIM Brazil Launches Pay TV Offer

TIM Brazil yesterday launched a device that will integrate free digital TV content, Netflix, YouTube and TV pay by TV Alphaville. The new device, called Live TIM Blue Box, is a company’s bet in offering pay TV content and get closer to the offering of the other major carriers – Oi, Telefonica and Claro (the Mexican group America Movil, which also owns the Net) – The trio has been offering pay TV in the Brazilian market for four years. TIM will not buy content, such as its competitors, but will work with partnerships.

Read more about the Brazilian Telecom Market

HSBC Brazil will be the last bank acquisition opportunity in the country

The purchase of HSBC by one of the three largest private banks in the country will probably represent the last large bank acquisition opportunity in Brazil. In terms of concentration, the union of HSBC mainly with Itaú Unibanco or Bradesco will make the banking concentration reach levels that are already considered a yellow sign by the Central Bank (BC). Today, the four largest banks – Itaú Unibanco, Banco do Brasil, Bradesco and Caixa – hold 70.25% of assets, 76.01% of deposits and 76.06% of the financial credit system. If Itaú or Bradesco buys HSBC, this level will rise to 72.94%, 79.12% and 78.26%, respectively.

Read More: Race for HSBC Brazil: Bradesco is ahead with an offer of US$ 3.4 Billion

Ethanol use in Brazil grows with new rules, says Louis Dreyfus unit

Ethanol producers in Brazil are feeling relief from improving demand, prices with tax incentives and an increase in the amount of fuel mixed with gasoline, according to a unit of Louis Dreyfus Commodities.

“I’m excited about the prospect of demand for ethanol this year,” said CEO Rui Chammas of Biosev in a telephone interview. “The market is reacting to the incentives.”

Sales of hydrated ethanol at gas stations in Brazil rose 32.6% in the first four months of the year, to 5.47 billion liters (1.44 billion gallons), while gasoline sales fell 3.7% after the government reintroduced a tax on fossil fuels that had been discontinued in 2012, showed regulator data.

Consumption has also increased due to a tax exemption in sales in the state of Minas Gerais, as well as the increase in the mandatory blending in the national gasoline, Chammas said. The Biosev is the largest producer of ethanol from Brazil after Raizen Energia.

Most of Brazil’s cars can be fueled with either gasoline or ethanol, and often consumers choose the most cost-effective fuel at the pump.

The country’s ethanol plants suffered from low demand in recent years, hurt by weak demand related to the measures by President Dilma Rousseff like price caps and tax breaks for gasoline in inflation control efforts. Only 36% of the country’s flex cars were fueled with ethanol last year, down from 82% in 2009, according to data from Datagro.

Since 2001, 49 producers were forced to close the doors and 67 others are under bankruptcy protection, according to a report from Unica.

Biosev’s harvest of sugarcane will probably grow in the 2015-2016 season, which began in April, with better weather after years of drought, Chammas said. The company expects to reach between 29 and 32 million tonnes this season, up from 28.3 million in the previous season.

Read More: Sugar and Ethanol Producer? Cosan is much more than that nowadays!

Race for HSBC Brazil: Bradesco is ahead with an offer of US$ 3.4 Billion

HSBC confirmed on Tuesday that will leave Brazil and Turkey, in a restructuring plan that will eliminate 50,000 jobs worldwide. In the dispute by the British bank business portfolio in Brazil, Bradesco took the lead with an offer of $ 3.4 billion by the British bank, ahead of Santander and Itaú Unibanco.

HSBC is one of the ten largest players in Brazil, the seventh largest bank in operations in the country with 2.2% stake in the asset market and 1.9% of loans and 853 branches, corresponding to 3.7% of system. The bank also has R$ 57 billion in deposits for a market share of 2.9%. The bank’s loan portfolio consists mainly of commercial loans (70%), while loans to individuals account for 22% and 8% are mortgages. Analysts estimate a potential valuation of the bank’s assets from R$10 billion to R$ 14 billion (US $ 3.5 billion to $ 4.6 billion).

For Bradesco, in addition to having an opportunity to get closer to Itaú Unibanco in terms of assets, the purchase is of particular importance in terms of synergies that it can bring to the bank. Bradesco is particularly interested in the portfolio of high-income customers and HSBC’s micro credit company, Losango.

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HSBC Brazil will be the last bank acquisition opportunity in the country

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Billionaire Court Win for Santander Brasil

Santander Brasil announced yesterday (3) that it won a cause of R$ 4.8 billion in court that will provide an extraordinary profit in the second quarter. With all that money positively affecting its balance sheet, the bank took the opportunity to announce an extra provision of R $ 1.6 billion. Much of this additional provision should be used to insure against defaults amid the crisis generated by Lava Jato and the growing number of judicial recovery.

While the other Brazilian big banks announced significant increases in provisions in the first quarter, Santander was the only one not to have any impact in this regard. With the victory in court, it may make this increase without having to lose the profit line. The bank did not explain what the R$ 1.6 billion on its balance sheet is for. According to a spokesperson, the new provision will serve to a number of issues, including bad debt.

According to the material fact disclosed by the institution last night (3), the bank had a win on a decision of the Supreme Court on the charge of Cofins tax levied on financial institutions since the enactment of Law 9718 of 1998. The They claimed that banks should not pay a higher rate, as previously understood by the taxman.

The bank had already won the case in the District Court, but federal prosecutors appealed to the Supreme who unanimously denied this appeal. That way the bank can now reverse a provision that had been doing for this case in the amount of R $ 4.8 billion. Just like when you make a provision, profit is negatively affected, the reverse is true. Ie to reverse this provision of R$ 4.8 billion, Santander can register directly on its bottom line.

As already announced they will take advantage of this extraordinary event to strengthen its balance sheet at $1.6 billion, the net impact should be less than the total won to the cause. Even so it will be around R $ 3 billion, quadrupling earnings in the quarter. But this number will depend on the tax incidence on the results.

According to the notes of the first quarter balance sheet, there are still issues to be evaluated on the PIS tax, for the same law 1998. At the end of the first quarter, the bank reserved R$ 10 billion for if they lost these causes.

 

COPOM raises Selic, Brazilian interest rate, to 13.75% per year, highest since December, 2008

The Brazilian committee for monetary policy (COPOM) has raised the interest rate benchmark by 0.5% to 13.75% per year. The decision was unanimous and came without a direction indication and in line with expectations. Therefore, Selic is back to the level of december 2008.

In the note released with the decision, the committee suggests that it did not finish the credit tightening cycle, since it’s maintaining the text used since January: “Evaluating the macroeconomic scenario and the perspectives for the inflation, COPOM has decided to raise the Selic”.

Now, the analysts debate if in the next meeting in July, the rate of 0.5% increase will be maintained, if it will drop to 0.25% or even if the cycle may be extended until September. A better understanding of this direction will probably be possible after the minutes release Thursday of next week.

The real interest, when discounted the inflation, is at 7.3%. This same index was 2.4% in April, 2013.

COPOM is clearly trying to show to the markets that this time, its search to take the inflation back to 4.5% by the end of 2016 is real. Brazil has damaged its credibility in the last few years after continuous spending deficits and a monetary policy lenient to higher inflation.

Central bank’s job of controlling the inflation may be “helped” by a stronger than expected cooling of the economy. Unemployment rate has reached 8% in May. The cooling in the economy could take some of the pressure off of the prices.