DealZone

from Breakingviews:

Petrobras deal fees not as paltry as they appear

Brazil's massive sale of about $79 billion of Petrobras stock looks set for a string of financial superlatives. One of them, however, won't be loudly crowed about by investment bankers. The underwriting fee on the deal, which is expected to close this week, looks to be among the lowest yet in a global stock offering of this kind.

According to the Brazilian prospectus for the offering, Petrobras is paying just 0.21 percent of the total size of the offering to its coalition of bankers. To put that in context, even the increasingly indebted U.S. government is paying the underwriters in the planned sale of the state's shares in General Motors a fee three-and-a-half times larger.

Of course, a relatively low gross underwriting spread was to be expected for an offering like the Petrobras deal. For starters, it's just humungous by any standard. Inclusion on the deal will make or break this year's league tables of the world's biggest underwriters, which securities firms use to market their services.

Second, Petrobras is controlled by the government on the eve of elections. No minister wants to explain why millions of reals are flowing to Banco Bradesco, Bank of America, Morgan Stanley, Santander, Itau and Citigroup instead of the country's favelas, or slums. And finally, fees in general are lower in Brazil, reflecting both the high competition among São Paulo's banking community and the fact it's still a poor country.

But poor is a relative concept when it comes to banking. Moreover, look closely at the Petrobras deal and it's hard to feel much sympathy for Brazil's bankers. While the deal does technically involve the sale of around $79 billion of Petrobras equity, $43 billion of that represents the transfer of stock to the government for 5 billion barrels of reserves.

Deals wrap: M&A powers up

File photo of Chinese electric workers working on a wire pole in Beijing October 25, 2005.  REUTERS/Jason LeeCreating the world’s largest utility, GDF Suez’s deal with International Power shows how hot the energy and power M&A market is. Take a closer look at the deals announced this year. View PDF

One of Hollywood’s biggest flops has been Metro-Goldwyn-Mayer. So Tinseltown financiers are understandably puzzled over what looks like a forthcoming sequel to the MGM solvency horror story: a buyout of Miramax, writes Rob Cox. *View column

Chinese banking giant ICBC may be about to get a run for its money from a small band of minority investors. Its plan to take full ownership of Hong Kong subsidiary ICBC Asia makes sense. But the unit’s minorities are in a strong position to make ICBC pay top whack, writes Wei Gu. *View column

Brazil exchange operator beefing up with CME stake

BM&FBovespa, the world’s third-largest exchange operator by market value, aims to raise its stake in CME Group to 5 percent, making it among the top three shareholders in the fast-moving market maker. Given Brazil’s huge presence in global commodities markets, it’s not hard to see why the country’s main exchange would want to increase its exposure to the top U.S. commodities trading entity. BM&FBovespa said it will invest $175 million over 10 years in a new trading platform with CME. But shares in CME, the world’s largest exchange operator by market cap, fell in early trading, although they later recovered to rise moderately. Hardly the reaction one would expect on news that a hungry, strategic buyer is more than doubling its stake.

It is possible regulatory concerns weighed on the stock. Cross border mergers that include potential technology transfer are natural fodder for antitrust boffins. But Bovespa is likely in for the long haul, as it has more to gain from taking a position in CME than the other biggest shareholders, Blackrock and Fidelity.

As far as the timing goes, CME which already has a 5 percent stake in BM&FBovespa, said only a couple days ago it would buy the bulk of Dow Indexes, showing it is not afraid of moving on big-name deals. The stock is nearly 20 percent down from a year high hit in early January, possibly underscoring the case for Bovespa to move at bargain prices.

Keeping score: BRIC flotations

Initial public offerings (IPOs) of companies from the so-called BRIC nations — Brazil, Russia, India and China — enjoyed their best-ever start to the year, according to Thomson Reuters data:

• BRIC IPO volumes for the beginning of 2010 are at their largest level, in terms of both value and number of issues, for any January on record.

• Asian IPO issuance for January 2010 to date has reached a similar record, in terms of value, being the largest January on record.

Keeping score: Brazilian IPOs and Russian M&A

Highlights from the Thomson Reuters Investment Banking Scorecard:

· CHINA, BRAZIL & US ACCOUNT FOR 80% OF IPOs
Banco Santander (Brasil) SA raised $7.0 billion in an initial public offering in New York and Sao Paulo, marking the largest IPO by a Brazilian company on record and the second largest IPO this year behind an offering from China State Construction Engineering, which raised $7.3 billion in July.
Global initial public offerings for year-to-date 2009 total $59.4 billion, a 35% decline from last year at this time.  Despite a flurry of recent offerings, nearly 80% of IPOs this year, by proceeds, have come from companies based in China, Brazil and the United States.

· ACQUISITIONS BY RUSSIAN COMPANIES DOWN 53%
An $11.7 billion bid by Russia’s Vimpelcom for Kyivstar, a Ukrainian provider of wireless telecommunications services partly owned by Norwegian state-owned Telenor ASA ranked as the week’s biggest deal and the largest acquisition by a Russian company this year.
Overall, worldwide M&A totals $1.5 trillion for year-to-date 2009, a 38% decline over last year.  Acquisitions by Russian companies total $28.6 billion so far this year, a decrease of 53% compared to 2008.

· JAPANESE FOLLOW-ONS REACH $35.6 BILLION
In its second common stock offering this year, Nomura Holdings Inc, raised $5.1 billion, marking the third largest Japanese follow-on offering this year behind Sumitomo Mitsui Financial Group ($9.4 billion) and Mizuho Financial Group ($5.9 billion).
The volume of follow-on offerings in Japan totals $35.6 billion for year-to-date 2009, nearly eight times greater than the volume seen during year-to-date 2008.  Capital raising by financial issuers dominates the market this year, accounting for 77% of total issuance.

from Alexander Smith:

Santander wins with Brazil float

    Buying ABN AMRO may have bankrupted Royal Bank of Scotland and Fortis, but it has proved another coup for Spain's Santander whose chairman Emilio Botin has shown his eye for a bargain.
    After flipping Italy's Banca Antonveneta for an impressive profit before the ink was even dry on the contract to take it over from ABN, Botin is now looking to float Banco Santander Brasil, including another former ABN asset, Banco Real, once part of the Dutch bank's Latin American empire.
    With Brazilian valuations riding high and the IPO market flourishing, Citigroup reckons BSB could be worth as much as $30 billion. If so, the partial sale would again demonstrate Botin's ability to spot a good deal.
    Brazil is far too important to Santander -- it accounted for 18 percent of the bank's first half profits of 4.5 billion euros -- for Botin to give up control. But a flotation of 15 percent of the Brazilian bank could raise $4.5 billion of scarce capital while giving Botin another currency for shopping in South America. lt is already Brazil's third-largest bank by assets.
    Santander has been able to keep buying through the financial crisis, becoming the biggest bank in the euro zone as a result. Botin has also picked up Sovereign Bancorp in the U.S. and Alliance & Leicester, along with the remains of failed former building society Bradford & Bingley, in Britain.
    Floating the Brazilian business would crystallise its value. It might also boost Santander's own share price, but risks investors taking the view that a global roll-out of the bank's name and brand means the parent is becoming a conglomerate rather than an integrated group.
    The possibility of attracting a conglomerate discount won't have escaped Botin, whose family still owns nearly 2.5 percent of the $115 billion bank.
    Unlike his colleagues in the banks which have failed, Botin has his family fortune tied up in the business he runs. This, surely, is a powerful reason why Santander has avoided plunging into areas where the risk was far greater than the executives knew or cared. The bank has the strength to take advantage of the fashion for things Brazilian, and he can reflect that the acquisition which sunk RBS has done him no harm at all.

Santander joins Brazil’s IPO party

Spain’s Santander confirms plans to spin-off 15 percent of its Brazilian business in a flotation potentially worth over $3 billion.

Reuters reported on July 21 that the bank was mulling an initial public offering in the second half of the year, and advisers have been appointed, people familiar with the matter say.

Santander will lead and underwrite the share sale alongside Credit Suisse and Bank of America/Merrill Lynch. Banco Pactual, the Brazilian bank sold by UBS in April, will be a bookrunner on the deal, the sources say.