Weg Declines as Brazil Market Rout Outweighs Cestari Deal

Industrial-machinery maker Weg SA (WEGE3) declined as the outlook for fewer interest-rate cuts dragged down Brazilian equities and overshadowed an agreement to form a joint venture with Cestari Industrial e Comercial SA.

Weg slipped 1.7 percent to 18.87 reais at the close of trading in Sao Paulo, after gaining as much as 2.3 percent earlier. The benchmark Bovespa index slumped 1.7 percent today as yields on interest-rate futures rose after the central bank lowered borrowing costs by half a point. Weg is down 13 percent this year, compared to 22 percent for the Bovespa.

The company, in a filing yesterday after the market closed, said it would join with Cestari to develop, produce and sell electrical equipment known as velocity reducers. Cestari assets included in the venture should generate 70 million reais ($39.2 million) in revenue in 2011, according to the filing.

While the deal is “positive,” it “will likely have a limited impact on Weg’s revenue,” which is projected at 5.1 billion reais this year, according to a note to clients today from Daniel Gewehr, an analyst at Banco Santander SA.

“This acquisition is strategically positive, as it enables Weg to enter the power transmission business, and is in line with the company’s growth strategy,” Gewehr wrote.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net

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