Profiles of Industrial Consolidation: M&A Activities in the Latin American Electricity and Gas Sector

Abstract

Industrial consolidation is a global trend that evolved during the last three decades. Market liberalisation and privatisation represent initial key transformation processes for this phenomenon in the energy sector. The energy sector moved over to common interest during the last years: The number and volume of international large-scale mergers increased, and new multinational super utility champions gained momentum (Graeme 2002). For example, the bid for the Spanish Endesa in 2006 included the second largest cash offer with an amount of nearly US$ 66 billion by Eon in history of Mergers and Acquisitions (M&A).

In addition, those transformation processes allowed new growth opportunities, e.g. in new or emerging markets. While competitors in liberalised energy markets seek to strengthen their market position, their underlying strategies reveal distinct differences and potentially differing degrees of performance. Therefore, the M&A transactions in the energy sector show specific characteristics in corporate strategy regarding size, integration level and geographical scope. According to the industrial logic, the big players in the merger endgame focused on their core competences. The champions followed the theories of growth to realise economies of scale, scope and density (Panzar and Willig 1981; Chandler 1990).

This empiric study analyzes the M&A activities in Latin America’s energy market with focus on Argentina, Brazil and Chile. The specific characteristics and motives for utilities’ M&A activities in these three countries serve as a good model how diverse industrial consolidation took place after the liberalisation and privatisation in Latin America during the 90’s. Furthermore, the study provides an analysis about the corporate strategies.

The study is structured as follows: After the abstract, the second section gives a brief overview and background information about the objectives and differences in the implementation of the transformation processes in Argentina, Brazil and Chile before privatisation. The third section explains the research methodology of the empiric study. The fourth section illustrates the research findings and results on industrial consolidation in the Latin American markets. The fifth section addresses the conclusions. The final section gives an outlook for further development in those countries.