Brookfield Agrees to Buy 70% Stake in Odebrecht for $768 Million

Brookfield Asset Management Inc., Canada’s largest alternative asset manager, agreed to buy a 70 percent stake in Brazilian water and sewage company Odebrecht Ambiental, in a transaction that could be valued at as much as $1 billion.

The purchase will be the first major deal for Brookfield’s publicly traded private equity arm, Brookfield Business Partners LP, since it was spun out in June. Under the terms of the agreement, Brookfield will pay about $768 million for the majority stake in the company, according to a statement Thursday, and will contribute an additional $125 million in working capital.

It may pay an additional $110 million if certain milestones are achieved over the next three years, the company said in the statement.

“This is consistent with our strategy to acquire and manage high-quality businesses with high barriers to entry,” Cyrus Madon, chief executive officer of Brookfield Business Partners, said in an interview. He expects the investment to produce returns in the high end of the range it typically seeks, of 15 percent to 20 percent.

Brazil Infrastructure

Odebrecht Ambiental has a tremendous opportunity for both organic growth and by building new facilities, Madon said. He noted the Brazilian government has recently said that roughly $94 billion would need to be spent over the next two decades to upgrade the country’s existing water and sewage facilities and to build new ones.

“Water management and sewage collection and treatment in Brazil remains very challenged, and the growth opportunities in the country are enormous,” Madon said.

The remaining 30 percent of Odebrecht Ambiental will continue to be held by the Brazilian employees fund, Fundo de Investimento do Fundo de Garantia do Tempo de Servico, Madon said.

Odebrecht Ambiental is the largest private water and sewage company in the country and serves more than 16 million people in more than 180 Brazilian municipalities, according to its website. Madon said many of Odebrecht Ambiental’s competitors are currently capital constrained given the state of the economy in Brazil.

The parent company, Odebrecht SA, is in the process of selling assets to reduce debt amid Brazil’s recession and fallout from the corruption investigation into state-owned oil company Petroleo Brasiliero SA. Marcelo Odebrecht, the conglomerate’s former chief executive officer and a controlling shareholder, is serving a 19-year prison sentence on charges that he colluded with other builders to pay kickbacks in exchange for lucrative public-works contracts.

Based in Salvador, Brazil, Odebrecht is facing a credit squeeze and wants to raise as much as 12 billion reais ($3.8 billion) through asset sales, the company said in June.

Brookfield was established in Brazil in 1899 and has been very active in the country in recent months through its various subsidiaries. Last month, the company’s infrastructure arm led a group of investors in the acquisition of a natural gas distribution network from Petrobras for $5.2 billion.

“Brazil remains a key market for investment for us, and generally, we continue to believe in Brazil’s long-term potential,” Madon said. “The current scarcity of capital in the country creates a strong market for us to invest in.”

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