Petrobras and Perez Companc sign definitive purchase agreement

Oct 17, 2002 02:00 AM

Brazil's federal energy company Petrobras signed the definitive stock purchase agreement to acquire a controlling 58.6 % stake in Argentine holding company Perez Companc, Petrobras president Francisco Gros told analysts in a conference call. The two companies' combined annual revenues are estimated to be around $ 23 bn.
"We are convinced that this acquisition represents a major turning point in Petrobras' history. As of today we will no longer be solely a major Brazilian company in the oil business but also Brazil's major multinational corporation," Gros said. "We're making a significant investment in Argentina because we firmly believe that it will continue to be the second largest economy in Latin American and therefore of strategic importance for any corporation with regional ambitions," Gros said. Perez Companc has outstanding assets and management and the acquisition is aligned with Petrobras' strategic objective of internationalisation and diversification of risks, he added.
Petrobrasand Perez Companc expect to file all antitrust documents shortly, Gros said. Although neither company envisages regulatory problems, the deal can be unwound if regulatory approval takes more than one year, or if approval is only given with certain limitations, Gros said.
Although Gros gave no estimated timeframe for obtaining approval, he said neither company has a dominant position in any of the businesses in Argentina so the approval should "flow through smoothly over the shortest timeframe possible." Petrobras will pay $ 1.03 bn for the controlling stake in Perez Companc, down $ 97.6 mm from the figure in the original agreement due to adjustments in the valuation of individual business segments following completion of due diligence. There was no consideration for goodwill, Gros said.
Petrobras will pay $ 689 mm in cash and $ 338 mm in notes issued by wholly owned subsidiary Petrobras International Finance Company, with a 4.75 % annual coupon and final maturity on October 4, 2007.
The coupon is down from the originally agreed figure of 6 % a year, and the option to convert the notes into Petrobras shares has been eliminated, Petrobras CFO Joao Nogueira Batista said. Perez Companc's market capital is approximately $ 1.2 bn, and the price paid represents an equity value of about $ 1.5 bn for 100 % of Perez Companc, Batista said.

Considering total debt and minority interests, Petrobras paid $ 2.4 per proved barrel of oil equivalent considering the confirmed levels of reserves as of December 31 2001, Batista said. As part of the purchase agreement, Perez Companc and 98 % owned energy subsidiary Pecom Energia have restructured about $ 2 bn of debts, extending the average life from approximately 3.1 years to 4.4 years, Batista said.
Furthermore, Petrobras expects Perez Companc financing needs to fund its five-year, $ 2 bn capital expenditure program will be relatively modest, the executives said. Only under a very stressed scenario, where access to financial markets is completely closed, Perez Companc might require a $ 200 mm cash input in 2004, Batista said.
"We believe that under the assumption that Perez Companc would be paying off all of its debt coming due over the next five years, the total refinancing needs of the company will be very modest," Gros said. Batista said the company has no short-term plans to launch a tender offer for the remaining Class C shares of Perez Companc.

Mario Lagrosa has stepped down as Perez Companc CEO to pursue other opportunities, and will be replaced by Petrobras new ventures manager Alberto Guimaraes. As much as possible, Petrobras wants to maintain the same management team and regretted the departure of Lagrosa, Gros said, adding that Petrobras intends to exercise control of Perez Companc at arm's length, primarily through the board of directors and focusing mainly on the strategic and integration issues.
To avoid any conflicts of interest, the day-to-day management will continue to be performed by the current Perez Companc management, and any integration will be considered on a case-by-case basis through negotiations between managers at the two companies, Gros said. Petrobras has hired US consulting firm McKinsey & Company to "maximize the integration process," Gros said.

The exploration and production portion of Perez Companc represents approximately 60 % of the company's value and was the main reason for the acquisition, Petrobras international director Jorge Camargo said. Perez Companc's total proven reserves are 8.4 bn barrels of crude oil and 10.67 tcf of natural gas, Camargo said.
Petrobras' Latin American footprint will also grow, as just 40 % of Perez Companc's reserves are in Argentina and the rest are spread across Venezuela, Bolivia, Ecuador and Peru, Camargo said. Petrobras' combined oil & gas reserves are now 60 % in Brazil and 40 % in the rest of Latin America, he said.

Following the acquisition, Petrobras' pro forma production will total approximately 1.8 mm bpd of oil equivalent, with 227,000 bpd coming from outside Brazil, Camargo said. Petrobras will have 155,000 bpd refining capacity outside Brazil, as well as 853 service stations and 15,000km of natural gas transport line in Argentina.
Petrobras also paid $ 49.8 mm for a 39.67 % stake in Petrolera Perez Companc, which operates the Entre Lomas field in Neuquen basin, Gros said. The Perez Companc family and foundation retain a 19 % direct stake in the company, while the remaining 41.33 % is owned by Argentine oil company Apco.

Source: Business News Americas
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