2.1 Review of Trends
2.1.9 Chile
In Chile, as in any sophisticated business society, M&As have gradually changed the scope and importance of corporate dealings. Article 99 of the Chilean Corporation Act defines mergers as the gathering of two or more companies into one company which succeeds the former in all their rights and obligations, and likewise absorbs their patrimony and shareholders, while it considers acquisitions as business concentrations that allow one company to gain control of another company.
Chile, along with several emerging countries has only recently begun to acknowledge the potential positive impacts of mergers and acquisitions. Many Chilean firms in the 90s made efforts to replicate the successes they achieved in the local market abroad (Calderón et al., 2005). More than $ 10 billion was invested during this period, mainly in Peru, Argentina and Brazil in the electricity sector through the acquisition of assets in the privatisation processes taking place in neighbouring countries. Other investments in the manufacturing and the services sectors followed, particularly in pension funds. In the manufacturing sector, greater part of these activities was related to natural resources, wood and pulp, metal manufacturing and food and beverages.
37
Despite the transformation that occurred in the Chilean economy and access to low credit facilities to the local Chilean firms, they were cautious about their foreign expansion efforts.
This was mainly due to the volatile economic and political situations most of its neighbouring countries found themselves in, which was difficult to convince Chilean firms about the security of their foreign investments in those countries (Calderón et al., 2005). They, however, focused on improving the efficiency of the domestic environment through the introduction of new technologies, innovative management styles that would offer them renewed synergies. This led to renewed interest consolidation by the local Chilean firms through M&As activities and alliances among companies in related businesses. This resulted in economies of scale and widespread integration.
The desire of Chilean firms to expand abroad rekindled after 2003, as a result of improvements in the domestic economy by over 6% in 2004 and 2005 and the availability of financial resources due to the robust economic growth and favourable prices for the country’s key exports (Guerrero, 2017).
Indeed, the supermarket industry remains one sector that has grown considerably through the enterprise of mergers and acquisitions. For example, two supermarket giants, D&S and Cencosud of Chile in 1998, had 29.3% of the country’s national sales and by the first half of 2006, they had obtained 62.5% of the total market share of the country. One notable record deal in 2007 was SACI Falabella’s $3.7 billion acquisition of a rival firm D&S (Distribution Y Servicio) another supermarket giant in Chile to form the second-biggest retail firm in the Latin America region to expand globally (Reuters, 2007). Several international acquisitions with deal value of more than $100 billion have been undertaken by Chilean companies. A key example is the 1.4 billion CMPC acquisition of a pulp and wood products plant in Brazil in 2009 (Ludeña, 2011). The wood product companies in Chile have established their business strategies and models in other countries like Uruguay, Brazil and Argentina. These Chilean companies have used a structure that is vertically integrated where they manage the forests and process the wood into final products, which are either exported into other developing countries or sold within the host countries (Ludeña, 2011).
38
Table 2.3: Chile’s Top 10 Outward M&A Transactions, 2007-2010
Date Acquirers Targets Target
Industry
Target Country
% of shares acquire
Value of deal
12/15/9 CMPC Aracrus
Cellulose SA- Guaiba
Forestry Brazil 100 1430
12/16/7 Cencosud Grupo Wong Retail Peru 100 633
11/17/7 Cencosud Navieras
G Barbosa
Eitzen Bulk Shipping
Retail Brazil 100 430
6/21/10 Ultragas Investor
A/S Transaport Denmark 33 93
2/27/9 Group
Cervecerias Unidas
Bavaria SA- Agua Brisa Bottled
Beverages Colombia 100 92
7/5/10 (CCU)
Cementos
Inversora Cervecera, SA
Food and Beverages
Argentina 100 88
11/16/10 Bio Bio Investor
Cementos Portland SAC
Cement Peru 30 61
1/14/11 Group Persquera
Exalmar
Fisheries Peru 100 60
4/23/9 Cencosud Easy Colombia Retail Colombia 30 60
5/19/10 Molymet Luoyang High
Tech
Metal China 50 38
Total 2,985
Source: Economic Commission for Latin America and the Caribbean (ECLAC)- Serie Desarrollo productivo N° 192, on the basis of Thomson Reuters.
Chile’s trend of M&A activities in recent years has focused on how it can accelerate its foreign investments. This is motivated by favourable returns in the local market environment and attractive opportunities in neighbouring countries. This situation continued with the acquisition of Fetzer Vineyards by Concha y Toro in 2011 for $ 238 million. In March 2012 also, in order to access new markets to increase its international presence, LAN Airlines pursued an important merger with TAM Airlines from Brazil where its shareholders will
39
control 71% of the company. The Chilean M&A market in 2015 remained active with an overall deal volume of 188 being recorded at a value of almost $30.24 billion, where the insurance and the financial sectors were largely the most active (Merrill Corporation, 2015).
Several factors are responsible for driving M&A transactions by Chilean firms. One such factor is the favourable and conducive domestic business climate due to its relative stable macroeconomic environment. Another driver is the country’s natural resources endowment.
These factors have enabled firms from Chile over time accumulate the required abilities for international expansion through the M&A route (Ludeña, 2011). Some Chilean firms, however, have taken advantage of similarity in language and development levels as well as physical proximity to expand to other neighbouring countries through M&As. This study, therefore, presents M&As transactions in Chile from 1987-2018 in Figure 2.9 below.
Figure 2.9: Mergers and Acquisitions transactions in Chile from 1987-2018 Source: IMAA INSTITUTE, 2018.