$18.68bn acquisition, 2006
Vale’s $18.68 billion acquisition of Canada’s Inco in 2006 was, until 2013, the largest M&A deal involving a Latin American entity; it was also the first solid example of a regional buyer venturing outside the region. The transaction instantly made Vale one of the top mining companies in the world.
“Up to that point we had isolated efforts from Brazilian companies to go abroad, on a very small scale,” says Luciano Siani, chief financial officer of Vale. “The Vale-Inco deal sparked interest from Brazilian companies of all sectors, who started to realize that it was possible to go abroad in a bold way.”
Financing the acquisition with debt took courage at that time, says Siani. It was only a year or two before the deal that Vale had realized that bridge financing of that size was available. The initial debt was replaced with domestic bonds, international bonds and longer-term loans. ABN Amro, Credit Suisse, Santander and UBS advised CVRD.
The deal coincided with a major consolidation period in the industry, which Siani says may not be seen again. It also turned Vale into a truly international company. In addition to the challenge of financing the deal, there was also legislation governing foreign companies in Canada, as well as unfamiliarity in North America with Brazil.
The commodities windfall – characterized by large price increases in 2005 and 2006 – that allowed the deal to happen, is winding down. China, a major buyer of iron ore, is expected to grow less than during the previous decade. However, Siani says the global mining firm is prepared to deal with this. “Even though China is going through a transition from a investment-led economy to a consumption-led economy and growth rates will be lower, they will still provide opportunities,” he says. LF