BM&FBovespa Offers Cash, Stocks in $2.7 Billion Cetip Merger

  • Non-binding proposal values Cetip shares at 39 reais each
  • At least half the payment for Cetip stake would be in cash

BM&FBovespa SA, the operator of Brazil’s equities and derivatives exchange, is offering cash and stock to merge its operations with Cetip SA, the country’s biggest fixed-income clearing house. The non-binding proposal values Cetip at 10.2 billion reais ($2.65 billion).

BM&FBovespa, which was reported to be in merger talks with Cetip earlier this month, is offering 39 reais for each Cetip stock. That means a premium of 14 percent from the price on Oct. 30, the last trading day before the negotiations were confirmed by both companies, and of 2.1 percent from stock’s closing price on Friday. At least half of the payment for the stake in Cetip would be in cash, with the rest being in the form of BM&F voting shares, according to a statement Friday with Brazil’s securities regulator.

Cetip rose 0.4 percent to 38.36 reais at 10:13 am in Sao Paulo, while BM&FBovespa fell 0.6 percent to 11.93 reais.

The combination would solidify BM&FBovespa’s dominance in Brazil, where it runs the country’s main securities and derivatives exchanges and its stock indexes are the benchmark for global investors. The proposal highlights the advantages of both companies’ platforms, according to a regulatory filing signed by BM&FBovespa’s Chief Financial Officer Daniel Sonder.

“This combination would unite two success histories and create a world-class company, with big systemic importance, prepared to compete in a global market that’s more and more sophisticated and challenging, increasing the safety, the soundness and the efficiency of the Brazilian market,” Sonder said in the filing.

The press office of BM&FBovespa said it won’t comment further on the deal. Cetip confirmed Monday, in a regulatory filing, that it received the proposal.

“The negotiations may take long because the corporate governance of both companies is very different,” Adeodato Volpi Netto, head of capital markets at the equity research firm Eleven Financial, said from Sao Paulo. “At BM&FBovespa, power is more concentrated.”

While Cetip’s shareholders may request a higher premium, there’s limited upside potential for the stock at the current price, Rafael Frade, an analyst at Banco Bradesco BBI SA, wrote in a note to clients Monday. He cut his recommendation on the shares to the equivalent of hold from buy.

"There’s some risk of the deal not going through, which could take Cetip back to the Oct. 30 level," Frade wrote.

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