Brazil's stock exchange Bolsa de Valores de São Paulo (Bovespa) has merged with the futures Bolsa de Mercadorias & Futuros-BM&F SA giving birth to the world's third-biggest publicly traded securities exchange and the largest in Latin America.
Shareholders of BM&F and Bovespa will each own 50% of the combined company, to be temporarily named "Nova Bolsa" (New Stock Exchange) announced BM&F Chairman, Manoel Felix Cintra Neto, during a press conference Wednesday, March 26, in São Paulo, in the Brazilian southeast.
Bovespa's shareholders will also receive 1.24 billion reais (715 million US dollars) in cash after the merger, said BM&F Chief Executive Officer Edemir Pinto. Nova Bolsa plans to expand across Latinamerica, where it can take advantage of a surge in cross-border direct investment, said Gilberto Mifano Bovespa's CEO.
"We have the advantage of being in Latin America, where markets are far from developed," said Mifano. "The growth potential that we see for this venture is huge."
The combined company will have a market value of about 20.5 billion US dollars. Only Germany's Deutsche Boerse AG, with 32.9 billion, and Chicago- based CME Group Inc, valued at 26.8 billion, are bigger.
The exchanges combined trade at price of 22 times earnings, according to estimates by Bradesco Corretora's Firetti. The ratio is about 16 times next year's estimated earnings, making the stock "more attractive."
The Board of Directors of New Exchange will consist of directors appointed by BM&F and Bovespa Holding in equal number, most of whom will be independent directors. A Transition Committee will be in place until next December 31 made up of chairmen of the boards of directors and the chief executive officers of both companies.
Based on preliminary estimates, given the existing synergies, the combined organization resulting from the proposed restructuring plan can potentially save up to 25% of the combined operational expenses by 2010.
The Brazilian exchanges, both based in São Paulo, said their boards approved the merger after entering exclusive negotiations last month.
"The consolidation process has just begun and there's a lot of room for these two companies to expand," said José Olympio Pereira investment-banking chief in Brazil for Credit Suisse Group, told reporters in a news conference.
Pereira said the upheaval in global credit markets is unlikely to affect the creation of Nova Bolsa.