Latin American Economy & Business - November 2016 (ISSN 1741-7430)

Region: Corporate Radar

Tough at the top in Brazil. According to a report by the Bloomberg news agency, the Brazilian recession is taking its toll on chief executives. At least 40 of the CEOs of 110 Brazil-based companies with assets of US$1bn or more have been replaced over the last two years, the report said. “Periods of crisis tend to drive up the exits of C-levels. This was intensified this year by a series of events in which you have a serious conflict between the interest of the company and the ones of shareholders and boards”, said Adeopato Volpi Netto, head of capital markets at Eleven Financial Research.

In October, Roberto Oliveira de Lima resigned abruptly as CEO of the beauty products company Natura Cosméticos after earnings missed analysts’ forecasts. Amos Genish of Telefónica Brasil has said he is stepping down for personal reasons at the end of this year. Bayardo Gontijo stepped down from Oi, the telecoms company in bankruptcy protection, after disagreements over how to reduce its heavy debt load. Education supplier Estacio Participaçoes has had no less than five different CEOs this year as part of a battle for control of the company. Itaú Unibanco, Brazil’s largest bank, has announced that Candido Bracher will take over from Roberto Setubal as chief executive in April 2017. Aerospace group Embraer said in June that CEO Frederico Curado was stepping down for personal reasons: less than two months later, its shares slumped after announcing a surprise second quarter loss and the fact that it was under investigation under the US Foreign Corrupt Practices Act. In October, Embraer announced that it was paying a US$205m fine to the US authorities to settle the investigation.

Chinese investment in Mexico. The first major foreign investment in Mexico after the US elections has a significant Chinese component. On 16 November, the government led by President Enrique Peña Nieto announced that the 20-year contract to build and operate a wholesale mobile communications network, which eventually could be worth up to US$7bn, had been awarded to the only bidder: the Atlán consortium. This is led by a Spanish telecoms businessman Eugenio Galdón, an infrastructure fund managed by Morgan Stanley, and the China-Mexico Fund, managed by a unit of the World Bank.

The China-Mexico Fund is the second largest shareholder in the venture with a 23.36% stake, after Morgan Stanley with 33.38%. The network was conceived as part of Mexico’s 2014 telecoms reforms, designed to reduce market dominance by América Móvil and promote greater competition and more competitive interconnection charges.

The deal is considered something of a risky investment however, given some uncertainty over telecoms demand in future years, and the requirement to offer low-cost service in isolated rural areas of the country. Rivada, a US-based company that was disqualified from the bidding on the grounds that it failed to provide financial guarantees by a 20 October deadline, has said it plans a legal appeal.

Mexico postpones oil and gas auction results. Mexico’s oil and gas regulator, the Comisión Nacional de Hidrocarburos (CNH), has approved a government proposal to delay the results of the second phase of the Round Two auctions of oil and gas exploration and production (E&P) contracts. The announcement will be pushed forward from 5 April to 12 July next year. This will allow the 12 E&P contracts to be announced on the same day as a further 14, which are due in the third phase of Round Two.

Contracts from these two phases are mainly for onshore gas prospects in the Burgos basin, in Tampico-Misantla, Veracruz, and in the southeast basin, in Tabasco and Chiapas. The auctions are part of the government’s policy to attract investment for international oil companies to help it reverse falling oil and gas output from mature fields.

The results of an earlier phase of E&P auctions are due to be announced on 5 December – these involve deep water blocks in the Gulf of Mexico close to the US border, as well as a call by state-owned oil company Pemex for partners to help it develop the deepwater Trión block.

Viacom makes Argentina move. US media company Viacom has agreed to buy Televisión Federal (known as Telefe), Argentina’s largest TV network, for a cash payment of US$345m. The seller is Spain’s Telefónica, which has been following a programme of asset sales to reduce its levels of debt. Significantly, the deal will make Viacom the first US company to operate a free-to-air TV network in Argentina in almost 50 years. Apart from the main network, Viacom is also acquiring eight Telefe provincial networks, an international pay-TV channel, online platforms, and, importantly, 12 production studios and some 33,000 hours of existing Spanish-language content.

According to media specialist Martín Becerra, “If it is true that they want to create a production centre for all of Latin America, this would be a very good place to do that. Telefe has a very significant archive of content, but what Viacom is really buying is the production capacity”.

The deal may be followed by other US companies, as both Turner (a division of Time Warner) and Fox (owned by News Corporation) are reported in talks to buy Fútbol para Todos (FTP), a state-owned sports programme which holds football match broadcasting rights.

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