The factors forcing Portugal to seek a bailout in 2011 have triggered a wave of mergers, acquisitions and government disposals in the country as it prepares to sell more assets such as flag carrier TAP SGPS SA.
Mergers and acquisitions in the first quarter rose to 6.1 billion euros ($7.6 billion), extending one of the strongest deal streaks in almost two years, according to Bloomberg data, buoyed by the government’s sale of state-owned assets and a series of takeover bids. Brazil’s Camargo Correa SA expects to register its 2.5 billion-euro bid for Cimpor-Cimentos de Portugal SGPS SA in the coming days, said an official speaking for Camargo, requesting anonymity in line with company policy.
“Although the merger and acquisition activity is temporary, I expect it to continue this year at least until the sale of TAP and airport operator ANA is concluded,” Jose Gabriel Chimeno, a partner in Lisbon at consulting firm Deloitte, said in a May 25 interview. There’s an “opportunity to buy assets that were not for sale in the past,” he said.
Last year, Portugal became the third euro-area country after Greece and Ireland to request a bailout from the European Union and the International Monetary Fund. As part of that aid package, the government agreed to sell stakes in companies including the biggest utility and the energy grid operator, while banks have to deleverage and boost capital ratios.
The country received many indications of interest for TAP, Maria Luis Albuquerque, secretary of state for treasury and finance, said on May 25. There will be “very significant” demand, Albuquerque said, for the carrier and airport manager ANA-Aeroportos de Portugal SA, which are set to be sold by the end of the year. The country also plans to sell the freight branch of rail service operator CP-Comboios de Portugal SA and postal operator CTT-Correios de Portugal.
Chinese bidders have emerged in numerous deals for Portuguese companies. Portugal said on Dec. 22 that China Three Gorges Corp. will pay 2.7 billion euros for 21 percent of utility EDP-Energias de Portugal SA to gain access to wind and hydropower assets from Europe to the U.S. The bid by the world’s biggest dam operator was a 54 percent premium to the Dec. 21 market price, Portugal’s state holding company Parpublica SGPS SA said.
In November, refiner China Petrochemical Corp. agreed to buy 30 percent of the Brazilian unit of Galp Energia SGPS SA, Portugal’s biggest oil company. And in February, Portugal said it had agreed to sell 40 percent of REN for 592 million euros to State Grid International of China and Oman Oil Co. The price values REN-Redes Energeticas Nacionais SA, Portugal’s power and gas grid operator, at about 150 million euros more than its market value, Albuquerque said.
The IMF noted in April that the sale of a 40 percent stake in REN had been at a “substantial premium” to market prices, bringing privatization proceeds to 3.3 billion euros, two-thirds of the revenue from asset sales foreseen by the financial aid program.
Angolan investors have also been raising stakes in Portuguese companies. Isabel dos Santos, the daughter of Angola’s president, is the biggest shareholder in Portuguese cable-television company Zon Multimedia SGPS SA, and holds 19 percent of Portuguese lender Banco BPI SA.
As advisers on the sale of stakes in EDP and REN, Portugal hired state-owned Caixa Banco de Investimento SA and Perella Weinberg Partners LP. Credit Suisse Group AG and Espirito Santo advised China Three Gorges, and Banco Espirito Santo SA and Deutsche Bank SA advised State Grid.
While Portugal’s biggest banks have been the most involved in its largest deals, including the planned sale of TAP, small financial advisers known as boutique investment banks are setting up shop in Lisbon to try to grab a piece of the action.
“The time seems just about right to increase our presence in the Portuguese market,” said Paulo Gray, principal and managing director of financial advisory company StormHarbour.
StormHarbour, based in London, plans to open an office in Lisbon next month, Gray, the former Portugal head for Citigroup Inc., said in an interview. Other investment banks that have recently opened offices in Lisbon include 3anglecapital and GBS Finanzas.
The government’s decision to hire outsider Perella Weinberg Partners last year for the sale of stakes in EDP and REN is a sign that that smaller investment banks may be able to take part in deals, said Santiago Biedma, general manager at GBS Finanzas in Portugal.
“That’s good news for independent boutique investment banks and bad news for the market incumbents,” said Biedma, whose company is currently working on three deals worth as much as 300 million euros in Portugal.
“We expect more state-owned companies to come up for sale this year while other, non-state companies, decide to merge to cut costs amid a challenging economic environment in Portugal,” he said.
Portugal’s economy shrank for a sixth quarter in the three months through March as the government cut spending and raised taxes to trim the budget deficit and curb debt. The economy may contract 3.3 percent this year before expanding 0.3 percent in 2013, the European Commission forecasts.
Tagus Holdings Sarl’s offer to buy out Portuguese highway operator Brisa-Auto Estradas de Portugal SA has also bolstered mergers and acquisitions volumes this year, according to Bloomberg data.
That bid as well as Camargo’s Cimpor offer were both announced in the last week of March and may signal growing investor interest in Portuguese companies with overseas activities or in key sectors of Portugal’s economy, Jose Luis Silva, a partner at accounting firm KPMG in Portugal, said on May 25.
“The main deals that took place in Portugal in the last 12 months included companies with operations abroad and in strategic sectors of the Portuguese economy that were previously protected,” Silva said. “These factors strongly mitigate the risks of these investments.”