CADE Approves Merger of TOTVS and Bematech

TOTVS S.A. (BM&FBOVESPA: TOTS3) (“TOTVS”) and BEMATECH S.A. (BM&FBOVESPA: BEMA3) (“Bematech”), in addition to what was informed by the companies on August 20, 2015 and September 03, 2015, hereby jointly announce that, on this date, the decision of CADE’s General Superintendence, approving the merger of Bematech’s shares by Makira II Empreendimentos e Participações S.A. (“Makira II”), and the subsequent merger of Makira II by TOTVS, was published, as detailed in the announcements previously made and in the other documents mentioned thereunder. Once the legal term of 15 (fifteen) daysfor the call-back (avocação) of the decision by CADE’s Court elapses with no objection to that decision, the companies will make a new announcement, with the guidelines regarding the procedures for the satisfaction of the transaction.

Travelers Buys Majority Stake in J. Malucelli to Grow in Brazil

The property casualty business, in which Travelers is now 95% stakeholder, will operate under the Travelers brand. The business will now focus on property, general liability, construction and financial insurance products. The company expects to serve its customers with enhanced and expanded product and services and hence capitalize on the opportunities in the Brazilian market offers.The remaining 5% will be owned by Paraná Banco, the parent company of J. Malucelli. Travelers will retain the 49.5% stake in the surety business of the J. Malucelli.

In Dec 2012, Travelers had made a similar attempt by increasing its stake in J. Malucelli Participações to 49.5% from 43.4%.

The acquisition bears testimony to Travelers’ prudent investment strategy, wherein it strives to expand in the attractive and growing market place outside the United States. Recently, the company, in a joint venture with J. Malucelli, acquired a majority stake in Columbia-based surety provider Cardinal Compañía de Seguros in its effort to build on the surety business there. The acquisition of The Dominion of Canada General Insurance Company by Travelers in Nov 203 is largely contributing to its Financial, Professional & International Insurance segment results.

JBS S.A. upgraded by Fitch Rating to BB+

JBS S.A. (BM&FBOVESPA: JBSS3, OTCQX: JBSAY, “JBS” or “Company”) communicates to its shareholders and to the Market in general that Fitch Ratings (“Fitch”), a rating agency, upgraded JBS S.A. from BB to BB+, with stable outlook.

According to the Fitch report, “the upgrade reflects JBS S.A.’s strong products and geographical diversification, as well as the successful integration of several acquired businesses over the past few years. It also factors in the strengthening of its business profile due to the recent acquisitions in the U.S., Europe and Australia. (…) Further, Fitch expects the company to report strong performance in all of its divisions in 2015 and 2016.”

The report also emphasized that “JBS S.A.’s ratings are supported by its strong business profile as the world’s largest beef and leather producer and its overall product diversification into poultry, beef, pork and to prepared foods.”

This upgrade underlines the Company’s commitment to operational excellence, free cash flow generation, financial discipline and value creation to its shareholders.

Vale proposes slashing dividend amid uncertain commodities outlook

Vale (NYSE:VALE) proposes cutting dividends even more than planned, looking to pay $500M for the second tranche of its 2015 dividend, half the $1B it proposed in January.The company says the reduction in the second dividend installment to ~$0.10/share (as of Aug. 31) reflects “the more uncertain scenario for mineral commodities prices and the focus on managing the balance sheet”. 

Vale’s board of directors is set to review the proposal at an Oct. 15 meeting, and payment would take place on Oct. 30.

Credit Suisse expects lower metal prices will lead Vale to cancel next year’s dividend altogether.

Barclays considering sale of investment banking business in Brazil

After disposing off its non-core assets in Portugal for €175m (£128m, $189m) in early September, Barclays is now considering the sale of its investment banking business in Brazil and is open to talks with potential buyers. The move is part of the bank’s restructuring programme led by new chairman John McFarlane.

According to Sky News, some executives at the bank have started exploring options to exit from part of its remaining investment banking operations in Latin America and discussions are at a preliminary stage.

Barclays decision follows HSBC’s sale of its Brazilian unit to Bradesco, a Brazilian banking and financial services company, for £3.34bn ($5.07bn) in an all-cash acquisition. However, the businesses of HSBC and Barclays are different in Brazil.

Company officials told Sky News that Barclays had reduced its presence in Brazil around two years ago, with the Brazilian arm being managed by teams in London, Mexico City and New York. But, it continued to offer services such as fixed-income advisory and risk solutions in the South American country and is expected to maintain a limited presence there even post the expected assets sale.

However, when an official comment was sought, a Barclays spokesman said, “We are constantly monitoring our opportunities in different geographies and businesses over the cycle. If any firm decisions are made, we will provide an update.”

The restructuring process was implemented by McFarlane to accelerate the process of letting go of its non-core division, after former chief executive Antony Jenkins was fired by the bank. Later, Barclays announced that it had disposed of its non-core assets that included its insurance, wealth and investment management business in Portugal to Spanish bank Bankinter SA.

Further, reports said that Britain’s second largest bank was exploring a similar exit in Italy and is in advanced talks to sell its Italian retail network and a portfolio of Italian mortgages worth $4.46bn in two separate auctions.

The moves have stepped-up the bank’s retrenchment from eurozone economies at a time when the Greek debt crisis had raised fresh investor concerns about the exposure of British lenders.

Fitch plays down 2-notch downgrade for Brazil

A director at Fitch Ratings on Monday played down the possibility of Brazil losing its investment-grade status during its next rating revision, saying the ratings agency “does not usually” give two-notch downgrades, barring exceptional cases.

However, Rafael Guedes, Fitch’s managing director for Brazil, said the possibility of an imminent one-notch downgrade is higher than 50 percent. He also noted that in 2002 the agency downgraded Brazil twice in the same year.

Fitch rates Brazil at BBB, two notches above junk, with a negative outlook. Competing ratings firms have already downgraded Brazil this year – Standard & Poor’s to BB-plus, in junk territory; and Moody’s Investors Service to Baa3, its lowest investment-grade rating.

Investors and even the Brazilian government expect Fitch to catch up with its peers, but the main question has been whether or not it will keep the country’s coveted investment grade.

A second downgrade to junk status is expected to have an even greater market impact than the first, as many investors are required to hold securities with investment-grade ratings from at least two ratings agencies.

Fitch representatives met with Brazilian policymakers last week in Brasilia and a decision on the country’s rating could come at any moment. Fitch has kept a negative outlook on Brazil’s ratings since April.

Guedes said Fitch’s decision will take into account the likelihood of President Dilma Rousseff getting Congress to pass the austerity measures needed to plug next year’s budget gap.

“The measures are not difficult to approve, but the government has no support in Congress,” he said in an event in Sao Paulo.

Guedes said that Brazil’s debt dynamics will not stabilize even if the government delivers a primary budget surplus of 0.7 percent of gross domestic product and the economy grows 1 percent next year. The Brazilian economy is expected to contract 1 percent in 2016.

JBS Announces the Conclusion of the Acquisition of Moy Park

JBS S.A. (“JBS” or “Company” – BM&FBOVESPA: JBSS3; OTCQX: JBSAY), in continuity to the announcement made in the Material Fact of June 21st, 2015, communicates to its shareholders and to the market in general, pursuant to CVM Instructions No. 10 and 358 of January 3rd 2002, as amended, that it concluded today the acquisition of 100% of the ownership of Moy Park Holdings Europe Ltd. (“Moy Park”).

The Company obtained the necessary regulatory approvals from the competent antitrust authorities, including the European Commission, to conclude the transaction without restrictions.

The closing value was composed by: (i) payment of US$1,212.6 million to Marfrig; and (ii) Moy Park net debt assumed by JBS in the total amount of US$293 million which includes Notes totaling GBP300 million due in 2021. The value paid is slightly higher than the amount of US$1,190 million previously announced due to variation in working capital and in net debt in the period between the signing of the agreement and the closing of the transaction, as originally agreed by the parties.

Moy Park has a history of more than 70 years, being a leader in high value added categories and a reference in the development and innovation of food products. With revenue of R$5.5 billion in 2014, of which 51% came from prepared further processed products, Moy Park customer base includes the main retailers and foodservice chains in UK and Continental Europe.

“This transaction is in line with our global strategy in expanding our portfolio of prepared and convenient food products. In addition, we see potential to expand our customer base in Europe, with a vertically integrated production, with innovation and strong brands”, stated Wesley Batista, Global CEO of JBS.

Telecom Italia may exit Brazil and towers, as deep review continues

Telecom Italia continues to go through the painful process of adjusting to the modern world, facing recessionary pressures at home and in its former growth engine in Brazil.

Italy has been suffering from the Eurozone recession since the 2008 crash, and this has helped make Telecom Italia (TI) the center of persistent takeover rumors. It is engaged in a major strategic review, which could lead it to be the first major European incumbent to break up. In the shorter term, however, it is looking for smaller deals to improve its cash and debt position, including the sale of its towers and a possible exit from Brazil.

The firm says it is seeing “strong interest” in its tower company, Inwit, which operates about 11,500 sites plus backhaul links. In June, TI raised about €875m in an IPO of 40% of Inwit, giving the whole business a market value of €2.4bn. TI CEO Marco Patuano said this week that the telco had “built a company that is financially very light to keep our hands free and able to move in all directions”, but added that there were no firm offers yet on the table.

TI will discuss the options for Inwit – which include mergers with other tower operators in the region to create pan-European scale – at its board meeting this week. However, one of the largest European towercos, Cellnex (which was itself floated by Spanish telco Abertis), denied speculation that it would make a bid, even though it already has Italian assets, and has said it aims to be the “American Tower of Europe”.

Patuano has said TI will be a “key player” in consolidating passive infrastructure in Italy, as part of the broader global trend for operators to divest their towers and other sites, to improve their cost efficiencies. That, in turn, is leading to the formation of powerful towercos with consolidated national or international portfolios, which either be joint ventures between the carriers (as in China), or fully independent (like Cellnex, American Tower or the UK’s Arqiva).

Wind already sold its towers last year, to Cellnex, netting €693m for a 90% stake in the unit, which controls 7,377 sites.

Last year, TI divested 6,481 towers owned by its Brazilian subsidiary TIM Participacoes, in a $900m deal with American Tower. Now it may consider more radical moves in Brazil, whose status as a mobile goldmine has been destroyed by the huge country’s deepest recession for 25 years.

Against that backdrop Patuano says TI will review its strategic plan for TIM Participacoes, Brazil’s second largest operator, in which the Italian telco holds a two-thirds stake. Brazil generates about 30% of TI’s revenues but Patuano told Bloomberg, ahead of the board meeting, that his firm was “focused at the moment on organic investments, but we need to review the strategic plan since the situation in Brazil worsened a lot”.

In February, TI unveiled plans to increase its investment in Brazil and plough BRL14bn ($3.6bn) into LTE expansion as well as 3G coverage improvement. It said it would create a footprint of 15,000 4G and 14,000 3G sites by 2017. Some of that spending may now be reduced, though TI stressed that it would make most of its investments in US dollars to protect itself from the impact of the crash in value of the Brazilian real.

The investment plans were seen as a strong sign that TI aimed to stay in Brazil, even though it was widely expected to exit after it lost out to Telefonica in the race to acquire GVT – and with that failure, lost the chance to gain fixed-line and TV assets and mount a future quad play.
TI insisted that TIM Brasil remained strategic, and went on to explore an acquisition of the fourth MNO, Oi, to improve its mobile scale and add some fixed lines. However, it may be reviewing the future of its Brazilian activities again.

All this is part of an overall and ongoing review, which will affect the home market too, although the economic situation is now improving in Italy, expanding TI’s options. In June, French media giant Vivendi became its largest shareholder, replacing Telefonica. Vivendi sold its telecoms interests last year, including its stake in SFR in France, but its chairman Vincent Bollore could now be a kingmaker in the consolidation of the Italian market, where Wind and 3 Italia are also looking to merge. That would create a stronger third rival to TI’s TIM mobile operator and to Vodafone, but may be blocked by regulators because it reduces the number of MNOs.

Brazilian Real rebounds after central bank vows to intervene

• The real enjoyed a massive rally on Thursday after the governor of Brazil’s central bank vowed to use “all instruments” available to policymakers to stem the currency’s recent slide.• Busting a five-day losing streak, the real rallied as much as 7% intraday, its biggest gain since November 2008.

• On Wednesday, the bank announced plans to auction $2B worth of currency swaps over two days – restarting a program that was scrapped earlier this year.

Brazil Announces Spending Cuts, New Taxes

On Monday, the government announced spending cuts and tax increases totaling almost $17 billion. The government said it plans to bring back the CPMF, a tax on financial transactions. The government hopes to raise more than $8 billion next year if Congress accepts the tax. However, many lawmakers oppose the measure.

Other proposed cuts would reduce government aid for farmers, infrastructure improvements and pay for government employees. Public health and low-cost housing programs could also face cuts. The government reduced tax subsidies for the chemical industry. It also reduced aid for exporters of manufactured goods and raised taxes on capital gains, profits from sales of investments.

The most recent measures are meant to cut a deficit in the budget next year. Brazil’s economy has shrunk for the past six months. That means its economy is in recession.

At the same time, President Dilma Rousseff has experienced a drop in popularity. Opposition members in Congress dismissed the cost-cutting measures as too little. Some are calling for the president to resign.

The Reuters news service reports that economists have say the expected savings look promising. However, it remains unclear if the measures will clear Congress without amendments. The speaker of Brazil’s lower house of Congress, Eduardo Cunha, said the president’s administration lacked the support needed in Congress to approve the proposed return of the CPMF tax.

The head of the Brazilian Senate, Renan Calheiros, said deeper cuts were needed to reduce the size of the federal government before Congress will agree to more taxes.

Government officials also say 10 ministries will be closed to save money.

The proposed reduction in public health and housing spending will be difficult for supporters of President Rousseff. Her Workers’ Party has resisted cuts to social programs.

Predictions of a big budget deficit in 2016 caused Brazil to lose its high credit rating last week. The rating agency Standard & Poor’s no longer considers the country’s credit rating as investment grade.

The downgrade means some foreign investment funds and other large investors may be forced to sell Brazilian government bonds. However, the value of Brazilian money, the real, increased on news of the cost cutting measures to reduce the deficit.

Information and news for people considering or actively investing in Brazilian stocks or bonds.

Don't miss the news related to Brazil investment!

Subscribe to this blog and receive notifications of new posts by email.