Massive M&A madness? Maybe...: first, Brazil has to get through elections. Even then, buyer beware. (Media).First it was pay television, then the Latin American Internet boom. Now, in a flight to quality of sorts, deep-pocketed global media companies are supposedly on the brink of invading Brazil's monster media sector, a multibillion-dollar market of 170 million consumers of music, news and information.
Deja vu See DjVu. all over again?
Driving all the chatter is a new law that allows foreign corporate ownership of up to 30% of lucrative TV, radio and print properties. Once the rules of the game are set, something industry observers say will be put off until early 2003 as the country wrestles with its huge national election, the way will be clear for a flood of foreign cash--if it happens at all.
Debt-ridden, cash-strapped domestic media conglomerates pushed for the law, a constitutional amendment that lets Brazilians retain at least 70% control. But big foreign media companies might think twice before investing, since virtually all of the local groups are tightly controlled by their founding families. Thirty percent ownership means no decision-making power, says Sao Paulo media lawyer Walter Vieira Ceneviva. "This doesn't mean there won't be deals. It just means there won't likely be a big slew of them," says Ceneviva.
Brazil is an attractive target: Despite a 5% decline in 2001 in global advertising, annual advertising revenues are estimated to be between US$4.3 billion and $5.3 billion. "The value of Brazilian media companies dropped in 2001, which means that international groups can now get a much better price for a stake in them," says Marcelo Affini, assistant editor of Meio e Mensagem, a Sao Paulo advertising and media publication.
Most global media giants, however--like AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. Time Warner in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and France's Vivendi Universal, both of which dumped their CEOs recently in the fallout fallout, minute particles of radioactive material produced by nuclear explosions (see atomic bomb; hydrogen bomb; Chernobyl) or by discharge from nuclear-power or atomic installations and scattered throughout the earth's atmosphere by winds and convection currents. from poor performance--are in awful shape after taking on debt to make acquisitions. Desperate to clean up their balance sheets, it is unlikely they will hurry to borrow more to take minority stakes in Brazil, media experts say.
"The new media law will attract the interest of a few large foreign media companies in large Brazilian ones, but there won't be an avalanche avalanche, rapidly descending large mass of snow, ice, soil, rock, or mixtures of these materials, sliding or falling in response to the force of gravity. Avalanches, which are natural forms of erosion and often seasonal, are usually classified by their content such of business," says Mark Abrams, a consultant with Sao Paulo's Telefinance. "[They will] focus on consolidating their existing positions, rather than overextending themselves into another continent, especially where they won't be buying control."
Buyers be there. Venezuela's Cisneros Group The Cisneros Group of Companies is one of the largest, privately held media, entertainment, telecommunications and consumer products organizations in the world. The Group owns or holds interests in companies ranging from broadcast television, networks and pay television businesses has expressed interest in setting up a shop in Brazil, as has Spain's Grupo Prisa, publisher of El Pais, which already has TV radio and newspaper investments in Mexico, Colombia and Bolivia. Other possible suitors include U.S. media giant Viacom, Mexico's Televisa and Spanish telecom Telefonica, which operates region-wide Internet service Terra as well as Telesp, the phone company for the state of Sao Paulo, excluding the city of Sao Paulo.
Organizacoes, Globo, the conglomerate that controls TV Globo, Brazil's biggest network, is prepping for selling season. The company confirmed that it is in talks with unidentified foreign investors, Globo also says it will reorganize re·or·gan·ize
v. re·or·gan·ized, re·or·gan·iz·ing, re·or·gan·iz·es
To organize again or anew.
To undergo or effect changes in organization. its assets--TV Globo, daily newspaper O Gloho, Radio Globo, as well as all of its debts--under one umbrella.
The new entity, to be called Globo, would then be open to strategic foreign investment as well as investment through local and foreign stock markets, possible via an initial public offering. Certain assets might be kept out of the holding company if doing so would add greater value for foreign investors, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a spokesperson in Globo's investor relations Investor relations
The process by which the corporation communicates with its investors. department.
Grupo Abril Abril is a major Brazilian media group, headquartered in São Paulo. It was founded in the 1950s by Italian immigrant Victor Civita. The company is now headed by his son, Roberto Civita. , Brazil's largest publishing house, says it is in the middle of a similar restructuring. "Because of the new media law, Abril is in the process of adapting its shareholding structure to prepare for new capital," says Cleide Castellan cas·tel·lan
The keeper or governor of a castle.
[Middle English castelain, from Norman French, from Medieval Latin castell , Abril's corporate affairs director. "I don't know Don't know (DK, DKed)
"Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. if that new capital will come through acquiring a foreign minority partner, offering stakes in the Grupo Abril on capital markets or a combination of the two."
There are plenty of legal and political issues left. Brazil must first pass so-called enabling legislation Noun 1. enabling legislation - legislation that gives appropriate officials the authority to implement or enforce the law
legislation, statute law - law enacted by a legislative body , clarifying under what terms foreign investors can enter a market long closed to them, including deciding the formats for buying equity, such as asset swaps Asset Swap
Similar in structure to a plain vanilla swap, the key difference is the underlying of the swap contract. Rather than regular fixed and floating loan interest rates being swapped, fixed and floating investments are being exchanged. or initial public offerings, and the sticky task of defining minority shareholder rights.
Marcelo Kneese, corporate finance director for media and telecom investment banking at ING in Sao Paulo, says enabling legislation could pass in early 2003--but that nothing will happen until then. "No foreign investor would be willing to suffer the regulatory risks surrounding the media law without this," says Kneese.
Brazil must choose a new president, most members of the Congress, 27 state governors and all its state legislators. At press time, Partido dos Trabalhadores candidate Luis Inacio Lula da Silva was leading in polls for the Oct. 6 vote. If he cannot obtain 50% of the vote, a run-off election must be held.
A government, business or institution's inability to function at a normal level due either to complex or conflicting procedures within the administrative framework or to impending change in the business. . Uncertainty does not help speed along foreign investment decisions, nor would an abrupt change in government, analysts say. "The presidential election has already increased political risk perception in Brazil," says Ricardo Vezo, a media and entertainment consultant at Booz Allen Hamilton Booz Allen Hamilton, Inc., referred to as Booz Allen is one of the oldest strategy consulting firms in the world. The firm formerly had two consulting divisions: WCB (Worldwide Commercial Business, also known as “The Commercial Side”) and WTB in Sao Paulo. "If an opposition candidate wins the election, this could curb foreign interest in media acquisitions here because those candidates haven't clearly defined their views on the media law and the enabling legislation needed to put it into practice."
Whatever the political risk, the Brazilian media market is so big and varied that the new law could speed up consolidation by bringing in private equity investors and by fueling interest in domestic mergers. Brazil has seven TV networks, 90 TV stations, almost 3,000 radio stations, 500 newspapers and 1,500 magazines, many owned by small and medium-sized companies.
The wording of the law makes it easier for private equity investors to snap up pieces of fragmented radio and newspaper markets--particularly a change allowing for corporate, rather than simply family or individual, ownership. "While radio stations and newspapers currently have small margins, [private equity] investors like to make small investments where strong consolidation possibilities exist, such as in the radio and regional newspaper markets," says ING's Kneese. He sees domestic private equity buyers moving first, since they will be able to buy enough interest to control their new investments.
Chris Torto, a U.S. citizen and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Horizon Cable Vision, says his successful foray into Verb 1. foray into - enter someone else's territory and take spoils; "The pirates raided the coastal villages regularly"
encroach upon, intrude on, obtrude upon, invade - to intrude upon, infringe, encroach on, violate; "This new colleague invades my Brazil was made possible by a 1995 law that permitted up to 49% foreign ownership in cable TV operations. Torto's company boasts 37 cable licenses and 100,000 customers in southeastern Sao Paulo state.
"I have a big say in this company because I started it by bringing U.S. and Brazilian investors together, investors who from the start had the same goals in mind," Torto says. "This is a lot different from buying a minority stake in a big family-owned business like TV Globo, which will give the investor zero say in how the company is run. That's why I don't think the new media law will attract a lot of foreign media capital."