“Tequila Crisis” to “Mango Madness”

Stephen Leahy

Doug Salmon

Brad Taylor

Jason Zeman

Presentation Roadmap

• M&A Overview: 4 periods– 1980’s through early 1990’s

– Early 1990’s – 1st Half 1998

– 2nd Half 1998 – 1999

– 2000 - Present

• Aggregate deal values by target country/industry• Telecom example• Country focus

Latin America M&A Overview• 1980’s through 1994: Limited Deal flow

- Debt Crisis / Hyperinflation / Political Instability• Late 1994 – 1st Half 1998: M&A Deals Exploded

- Government Privatizations- Fiscal Stability Increased (Real Plan/Convertibility Plan/Mexican

Reform Package)• 2nd Half 1998 – End of 1999: Deal flow Slowed

- Internal Instability (Argentina)- Emerging Market Crises (Russia/Brazilian Devaluation)- Controversial Elections (Argentina/Chile/Mexico)- Legislative Transformation (Venezuela)- Privatizations: 1998-$39.6bn; 1999-$8.1bn

Latin America Announced M&A Deal Value

$20,134.0

$35,455.0

$72,890.0

$86,129.0

$68,979.0

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

$80,000.0

$90,000.0

$100,000.0

1995 1996 1997 1998 1999

Vol

ume

($m

ils)

CY1995 to CY1999

Latin America M&A Volume Growth

0%

100%

200%

300%

400%

500%

600%

1995 1996 1997 1998 1999

% G

row

th (Y

oY)

Worldwide Latin America

CY1995 to CY1999

M&A Overview (Con’t)

• 2000 – Present: Buying Spree• Record Pace in 1st Half 2000

– $ 56 Billion in announced deals (33% increase y/y)

• Telecommunications and Banking Sectors Lead– Spain’s Telefonica announced $ 23 billion in 5 deals

– Mexico’s banks are being bought by Spanish and US companies

Latin America Announced M&A by Target Nation

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

$70,000.0

1995 1996 1997 1998 1999 1H00 2000E

Volu

me

($m

ils)

Argentina

Brazil

Mexico

Chile

Peru

Latin America Industry Rank Values in 1H00 ($mils)

Target Industry Rank Value # of DealsTelecommunications $24,760.3 41

Electric, Water, Gas (Utilities) $7,741.9 43

Commercial Banking $5,711.3 21

Investment & Commodity Firms $5,619.3 27

Radio/Television Broadcasting $2,308.2 13

Food and Kindred Products $1,508.4 29

Oil & Gas: Petroleum Refining $1,503.8 16

Business Services $1,323.5 67

Mining $1,319.9 17

Metal & Metal Products $1,231.6 11

Telecom Investment in L.A.

• Source of Capital, Technology, and Jobs

• FMN obtain access to large mkts, low cost labor, and tariff circumvention

0

5

10

15

20

25

30

35

Tel Util

Value

# ofDeals

0

10

20

30

40

50

60

70

80

Basic Leased Mobile ISPs

CompetitionMonopoly

Telecom Services: Level of Competition in Americas

Mexico M&A Environment

• 1988 Salina Liberal Administration

• 1993 Foreign Investment Law

• 1994 NAFTA

• 1994 FIL Amendments

• 1998 Bank Ownership Restrictions Lifted

• 1H to 2H 90s - 27B to 54B FDI

• US FDI Increase to 12.5B for 2000

Mexico - M&A and the Bolsa

$-$2,000.0$4,000.0$6,000.0$8,000.0

$10,000.0$12,000.0$14,000.0$16,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

01000200030004000

5000600070008000

Bo

lsa Deal Flow

Bolsa

Mexico - M&A and Brady Bond Rates

$-$2,000.0$4,000.0$6,000.0$8,000.0

$10,000.0$12,000.0$14,000.0$16,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

02468

10121416

Bra

dy

Ra

tes

Deal Flow

Brady Rate

Mexico - M&A and Foreign Exchange Rate

$-$2,000.0$4,000.0$6,000.0$8,000.0

$10,000.0$12,000.0$14,000.0$16,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

7

7.5

8

8.5

9

9.5

10

FX

Ra

te Deal Flow

FX Rate

Mexico Guiding Principles

• Sustainable Economic Growth

• Job Creation• Competitive in

Product Sectors• FDI Friendly

• 1998-2000 - GDP 3.5 to 5%

• 1999 - Lowest Open Unemployment since 1985

• 2H90 Strong Increase

Argentine M&A Environment: The Past

• Austral Plan in 1985• Convertibility Plan in 1991

- Austerity program under Menem- Pegged currency- 51 firms privatized 1990 – 1992 for $14bn- Inflation decreased from 3,000%+ to .01% in 1996

• Q397: Merval exceeded 800• July 1998: Recession has gripped Argentina• 11/00: Merval sank to under 400

Argentina - M&A and the Merval

$-

$5,000.0

$10,000.0

$15,000.0

$20,000.0

$25,000.0

$30,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

0

100

200

300

400

500

600

700

800

Me

rva

l

Deal Flow

Merval

Argentina - M&A and Brady Bond Rates

$-

$5,000.0

$10,000.0

$15,000.0

$20,000.0

$25,000.0

$30,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

0

2

4

6

8

10

12

14

16

18

Bra

dy

Ra

tes

Deal Flow

Brady Rate

Argentina - M&A and Foreign Exchange Rate

$-

$5,000.0

$10,000.0

$15,000.0

$20,000.0

$25,000.0

$30,000.0

1995 1996 1997 1998 1999

Vo

lum

e

00.20.40.60.811.21.41.61.82

FX

Ra

te Deal Flow

FX Rate

Argentine M&A Environment: The Present & Future

• Sovereign bond spreads hit +867 bps in Q400• 12/00: Announced “el bindaje” with $14bn from

IMF• Privatization of remaining 21 public firms• Fiscal austerity required to meet -$4.7bn fiscal target• Merval up 28% in 1/01, but plunged in 2/01• Industrial production 4.2% in 1/01• Consumer spending 1.8%. Confidence = 20.7• Largely dependent on US/Europe/Japan

Brazilian M&A Environment: The Past

• July 1994 – Finance Minister Cardoso launches the Real Plan– Goals: slow inflation, reduce fiscal deficits, open

economy, privatize– Pegged to USD, inflation adjusted wages, tight policies

• Problems: FX rate valuation & Fiscal Deficit– Crawling peg became overvalued by 1998– Congress would not pass fiscal reforms (Soc. Security)

• By Jan ’99, int. rates shot up to attract foreign capital, couldn’t hold up. Devaluation Jan 15, 1999.

Brazil - M&A and the Bovespa

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

020004000600080001000012000140001600018000

Bo

vesp

a

Deal Flow

Bovespa

Brazil - M&A and Brady Bond Rates

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

0

5

10

15

20

Bra

dy

Ra

tes

Deal Flow

Brady Rate

Brazil - M&A and Foreign Exchange Rate

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

1995 1996 1997 1998 1999

Vo

lum

e (

mil

lio

ns)

0

0.5

1

1.5

2

FX

Ra

tes

Deal Flow

FX Rate

Brazilian M&A Environment:Present and Future

• Brazil recovered from January 1999 devaluation rapidly

• Cardoso remains President until 2002 elections– Recently split Congress is bonding with Cardoso

– Attempting to pass fiscal reforms to meet IMF requirements

• BRL is still inexpensive. Foreign companies looking to purchase Brazilian assets

• Brazil’s exporters & growth industries are attractive – Pulp & paper, Telecommunications, Banking

– Privatizations

Conclusion

• Macroeconomic factors had mixed correlation results

• Emerging markets are viewed as one entity• Merger & Acquisitions in LatAm will

increase in Telecom, Banking, and Utilities over the Long-Term

• Rosy outlook predicated on robust US economy

Q & A

Share of Regional Internet Mkt

Brazil

Mexico

Argentina

Venezuela

Chile

Columbia

Rof L.A.

0%5%

10%15%20%25%30%35%

Bra

zil

Mex

ico

Arg

entin

a

Ch

ile

Countries

Internet Penetration in U/M Class, 1999

Series1

Argentina: Network Equipt Suppliers

Siemens

Nortel

Alcatel

Lucent

NEC

Other

Siemens

Nortel

Alcatel

Lucent

NEC

Other

Telecom Future Investment

Local representation is essential

Options:

Local Office

Partnering

Use of agents or distributors

Latin America Announced M&A by Target Nation

$-

$10,000.0

$20,000.0

$30,000.0

$40,000.0

$50,000.0

$60,000.0

1995 1996 1997 1998 1999

Vol

ume

($m

ils)

Argentina

Brazil

Mexico

Chile

Peru

CY1995 to CY1999

Top-10 Advisors

Advisor Rank Value # Deals

Morgan Stanley Dean Witter $4,309.2 8

Merrill Lynch $4,020.5 6

JP Morgan $3,914.6 18

Salomon Smith Barney $2,993.4 8

Chase Manhattan $2,946.8 6

Credit Suisse First Boston $2,465.5 9

Boavista Inter-Atlantico $2,307.9 4

Banco Brascan SA $1,818.9 4

Lehman Brothers $1,618.8 3

Banco Espirito Santo $1,551.4 3

Maxima Consultoria $1,311.0 3