BIG DEAL BANKS.

Goldman Sachs, Merrill Lynch and Credit Suisse First Boston are hot stuff thanks largely to one huge transaction

ABOUT THIS TIME LAST YEAR, when Spanish oil company Repsol bought its Argentine counterpart YPF for US$17 billion, the deal's bankers, Goldman Sachs, Merrill Lynch and Credit Suisse First Boston, were assured top spots in the annual ranking of advisers for mergers and acquisitions in Latin America.

More and more, investment banks are pursuing this sort of big deal to springboard to the top of the regional rankings. In doing so, they are challenging investment banks like regional leader Salomon Smith Barney and JP Morgan, which grind out a larger volume of comparatively smaller transactions.

"One or two big deals like these can skew the rankings," says Roger Ullman, managing director and head of Latin American M&As for Merrill Lynch, the region's No. 3 adviser of mergers and acquisitions.

Alberto Verme, head of the Salomon's Latin American investment banking division, says of the big-deal strategy, "Maybe that approach can turn out to be lucrative. But we started to build this up little by little."

The 20% drop in overall announced mergers and acquisitions in 1999 to just under $69 billion may have exaggerated the impact of a few transactions, but clearly "big deal" banks are gaining ground fast in the rankings. Goldman Sachs (No. 2 in 1999), and Credit Suisse First Boston (No.4), which were not in the top 10 a year ago, did more than $20 billion in transactions each last year thanks in large measure to one deal: Repsol-YPF. And if Goldman Sachs and other investment banks can close this year's big deal, Spanish telecom firm Telefonica's $21 billion acquisition of its Latin American subsidiaries, they will undoubtedly be on the top of the charts again in 2000.

Among the leading advisers of mergers and acquisitions last year, JP Morgan did 31 deals--50% more deals than any one of the top four banks--but its $7.5 billion in deals were equal to barely a third of the $20 billion-plus at each of the other four banks. Salomon Smith Barney, the region's top adviser for the second year running, only barely retained its title (see sidebar) even though it, too, conducted considerably more transactions than its rivals.

No easy deals. The reason for the close race was Repsol's hostile takeover of Argentina's largest publicly traded company, YPF. The Argentine government had sold a minority stake to private investors in 1993, but acquiring the remaining shares would prove a large, complex international transaction that in many ways reflects how difficult it is to bring home a megadeal.

Goldman Sachs took the lead on cutting through the cross-border legal maze for Repsol. "It was a very complicated transaction," says Martin Sanchez, Goldman's vice president for mergers and acquisitions in Latin America. "It required a $16 billion fully committed acquisition finance facility and coordination across three jurisdictions: Argentina, the United States and Spain. In addition, there was also some uncertainty as to how the new tender offer rules in Argentina would be applied."

In January 1999, Repsol bought 15% of YPF from the government for about $2 billion. It tried to woo the Argentine oil company's executives to support a full-blown takeover to no avail. After months of trying unsuccessfully to negotiate a deal to buy the company, Repsol made an unsolicited offer of $44.78 per share to gain control of 85% of the company for about $13.44 billion, or 25% more than the premium over the closing per-share market price at that time.

"The [deal's] size created a financial challenge for Repsol, which is almost the same size as YPF," says Roger Ullman of Merrill Lynch, which also worked on Repsol's behalf in the YPF deal.

But the Spanish company and its advisers put together a bid-funding package that included a $15.5 billion loan and $2.5 billion asset sale. Any opposing bid would have to be more than $47 per share, thanks to provisions made during the January deal between Repsol and the government.

The advisers still had to coddle the YPF management team. And they had to work out other deal mechanics. U.S. institutions held the bulk of the YPF shares as American Depositary Receipts, or ADRs, which is the case for many Latin American multinationals now. They had to walk the companies through the complex Argentine tender laws, deal with last-minute deadline changes, get approvals from the Argentine Securities and Exchange Commission and put together an international package that would satisfy a host of countries and companies.

Such complications are becoming the status quo for mergers and acquisitions in Brazil, Mexico, Argentina, and throughout the region. Many of Latin America's largest companies are now publicly traded, global concerns. Any takeover not only involves shareholders in various countries but also assets around the world. "There's been a change in the competitive landscape," says Eduardo Centola, an investment banking vice president for Goldman Sachs. "There are a lot more cross-border and complex deals."

As the deals become bigger and more complex, they are attracting more and more attention from the major investment banks. A big Latin American gun or two working out of New York can pay for maintaining a large staff and an extensive and expensive network of offices in the region with one large deal. In the measure that these deals involve transactions common to developed markets and existing first-world multinational clients, the big investment banks can reduce their costs still further.

The YPF deal started because Repsol advisers like Merrill Lynch and Goldman Sachs knew the Spanish company was looking to make big investments in Latin America. "We are very familiar with tender offers and exchange offers that are relatively new to Latin America, but that we have been implementing for several years in the U.S. and Europe," says Goldman's Sanchez.

Breaking the bonds between banks and buyers in the developed counties is key to gaining an inside track to the top of the advisory tables. Some of the banks are trying to win business from the biggest companies through privatizations. "We have been able to break into relationships with other firms," says Lorenzo Weisman, the head of Latin America corporate finance for Warburg Dillon Read, which finished 10th in the rankings. It has done so by advising governments in Argentina and Brazil on some major privatizations last year and then working hard to retain the buyers as clients.

Still other investment banks are foregoing their commissions just to crowbar their way into big deals in the region. Recalde, of Credit Suisse First Boston, says, "People are buying their way in, doing work at the cost of doing business for the deals."

The big deal hunters may eventually self-destruct due to low or no profitability but there is no doubt that they will not be done in by a dearth of megadeals in the near future. The $21 billion Telefonica deal promises to put various banks back in the top 10 this year. For the banks like Salomon and JP Morgan, grinding out a large volume of comparatively low value deals, it means that they will either have to land some large transactions, too, or accept being also-rans in the ranking.

RASH RANKINGS

A combination of delayed documents and ranking wrangling almost accomplished what other investment banks could not--dethrone investment bank Salomon Smith Barney as the leading mergers and acquisitions adviser in Latin America for 1999.

While the investment bank and its competitors knew Salomon had racked up enough deals to be named No. 1 for the year, the "final" rankings released to LATIN TRADE on Jan. 24 listed Goldman Sachs as the leading adviser with deals worth US$23.7 billion and Salomon in second with $22.7 billion.

Three days later, though, Salomon issued a press release saying it was the first-place finisher with about $28.2 billion. Where did the $6 billion difference come from? Salomon had not been credited for its role in the financial restructuring of Brazilian telecommunications company Telesp on Nov. 30, 1999.

Salomon acknowledges that it did not get all the paperwork into Thomson Financial Securities Data, the company that tabulates and publishes the rankings, until the first week of January. And, due to the vacation schedule at Thomson, that paperwork would not have been picked up until Jan. 10.

No one's sure what happened between Jan. 10 and Jan. 24, when the listings that excluded the Telesp restructuring were released. In the end, Thomson discounted almost half of the deal's value, but the transaction was still enough to put Salomon on top.

Competing investment banks say they knew all along that Salomon had won and that there are no hard feelings. "The important thing here is that we are generating interest in Latin America," says Diego Recalde, managing director and head of Latin American mergers and acquisitions for Credit Suisse First Boston. But wait a minute, he wondered aloud, "I think they forgot our Colombia deal...."

                          TOP FINANCIAL ADVISERS
    Rank                                   Value    # of
'99  '98 '97                            (US$ bill.) Deals
 1     1   2 Salomon Smith Barney          24.9      20
 2    17  12 Goldman Sachs & Co            23.7      10
 3     7   9 Merrill Lynch & Co            22.4      14
 4    13   5 Credit Suisse First Boston    20.0      14
 5     7   1 JP Morgan & Co                 7.5      31
 6     3   4 Morgan Stanley Dean Witter     4.5      17
 7     6   7 Dresdner Kleinwort Benson      4.4      15
 8    15  14 Chase Manhattan Corp           4.0      20
 9     5  19 Deutsche Bank AG               3.9       8
10     8  15 Warburg Dillion Read           2.6      15
SOURCE: Thompson Securities Data
                      But YPF and other energy deals
                           DEALS BY SECTOR/1999
Oil & Gas       33%
Electricity     17%
Telecom          7%
Insurance/Funds  5%
Food             5%
Retail           4%
Other           28%
                        Boost Argentina and Chile.
                        M&A VOLUME IN US$ BILLIONS
           '99  '98
ARGENTINA 26.5 14.1
BRAZIL    16.1 51.3
CHILE     10.7  2.5
MEXICO     4.1  7.0
PERU       1.1  0.3
SOURCES: Thomson Securities Data, LATIN TRADE.

E-MERGING NETWORK

AFTER SPENDING ABOUT TWO DECADES BUILDING a professional portfolio on Wall Street with Salomon Smith Barney, Goldman Sachs and Merrill Lynch, Harvard MBA 

Bill Brock caught the Internet bug and never got over it.

In May 1999, the 49-year-old closed the books on his investment career for the blank ledger of a cyber-company as the president and chief operating officer for MergerNetwork, an Internet M&A store started by Bob Brauns, a buddy and a Wall Street mergers and acquisitions adviser.

"It's a good way to bring together a fragmented industry," Brock says.

There's nothing fragmented about 5-year-old MergerNetwork's numbers--500 transactions worth US$5 billion so far, Brock says. The company racked up 250 of those transactions and $3 billion last year. Some 5,600 businesses worth between $1 million and $500 million are listed for sale on the site, www.mergernet.com, including 244 listings from overseas and 56 companies from Latin America.

The company charges prospective buyers a fee for the pertinent information about the companies listed on the site. An annual "subscription" costs $300, while it costs $200 for six months and $130 for three months. Buyers can also purchase information about individual listings, which range from $10 to $25. According to Brock, there are about 10,000 active buyers, including buyout firms, businesses, consultancies and venture capital funds.

The MergerNetwork is now expanding in Latin America. It recently signed a deal with the Argentine web company Decidir to list some of the M&As, in Spanish, for South and Central America. The U.S. firm intends to establish similar partnerships in Brazil and Mexico.

MUTED BUGLER

DURING THE PAST DECADE, GRUPO CLARIN, Argentina's largest media company, has entered many fast-growing new businesses, including pay television, telecommunications and the Internet. However, with US$1.4 billion in debt on $2.2 billion in sales, Clarin is now finding that developing these new ventures won't be cheap.

A taste of how much commitment will be required became clear last December, when the privately held Clarin sold an 18% stake to New York-based investment bank Goldman Sachs for an estimated $500 million to finance further expansion.

That's not the way the publisher of the world's largest-circulation Spanish-language newspaper would have liked to raise money, but some two years of seeking cash via a bond or stock offering didn't pan out.

In 1997, Clarin, which means bugler in Spanish, contacted Goldman Sachs about a bond offering. But turbulence in the international markets scuttled it. Then, in October 1998, it hired Morgan Stanley and BankBoston to seek "a strategic partner" for its cable TV company Multicanal. Nothing ever came of it.

Clarin also considered a stock offering, but financial advisers say the structure of the various assets and the unstable markets nixed that possibility, too. Finally, Goldman took the unusual step of buying a stake in the company. Martin Sanchez, a vice president of investment banking at Goldman Sachs, says that the investment bank sought to "build a strategic partnership." Plans are to take the company public in a year or so, probably on the New York Stock Exchange.

Heather Briley