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Alfa Boosting Pacific Rubiales Stake Raises Takeover Odds

Alfa SAB, the Mexican auto parts and petrochemical company, has raised its stake in Colombia’s Pacific Rubiales Energy Corp. more than 20 times in just over two months, boosting the chances of a takeover, Monex Casa de Bolsa said.

The company’s holding in Pacific Rubiales rose to 14.23 percent, or 44.6 million shares, from about 10 percent when Alfa disclosed the stake May 20, according to Canada’s System of Electronic Disclosure by Insiders. Pacific Rubiales is based in Bogota and trades in Toronto.

Under Canadian law, a company must make a public takeover bid in most cases if it reaches or seeks to reach a 20 percent stake in another company. Rules stipulate it must offer to purchase shares from all stakeholders under the same conditions, although it may not need to buy all shares for sale.

Alfa “is getting close to that level,” Fernando Bolanos, a Mexico City-based analyst at Monex, said in a telephone interview. “This increases the possibility of an acquisition.”

Pacific Rubiales shares were unchanged at C$20.58 at the close of trading in Toronto. Alfa declined 0.8 percent to 37.68 pesos in Mexico City.

Alfa, based in San Pedro Garza Garcia, Mexico, owns a stake in U.S. shale wells and wants to become a “very significant” player in oil production and exploration in Mexico and outside the country, company executives said in a conference call on July 15. The executives said on the call they’re awaiting regulations being debated in congress to open Mexico’s energy sector to private drilling before deciding their strategy with Pacific Rubiales.

Mexico Opportunities

Pacific Rubiales is looking at opportunities in Mexico and hired Bank of America Corp. to review strategic options, which has spurred speculation that it may be bought.

Mexico broke its 75-year state monopoly on crude production last year with constitutional amendments that grant companies the right to drill with government-owned Petroleos Mexicanos or on their own. Alfa executives said July 15 that after they “analyze the situation” of the law that emerges they will “assemble the right structure to pursue those opportunities. Pacific Rubiales investment could be part of that structure.” Alfa and Pacific Rubiales declined to comment on takeover prospects.

Eric Conrads, a money manager who helps oversee $500 million in Latin American stocks at ING Groep NV in New York, said in a July 21 e-mail that he thinks a joint venture between Pacific Rubiales and Alfa is the most likely scenario. On July 24, after Alfa raised its stake in the company to 14.1 percent, Conrads said it’s a “bit surprising they keep buying.”

Bolanos said he thinks the most likely outcome is for Alfa and Pacific Rubiales to form a joint venture, though the odds of a takeover have increased as share purchases mount.

Pacific Rubiales’s market capitalization is C$6.4 billion, ($5.9 billion), according to data compiled by Bloomberg.

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