Structural Changes and Specialization in Brazilian Industry:

The Evolution of Leading Companies and the M&A Process*

Frederico Rocha#
David Kupfer#

Introduction

During the 1990’s, the Brazilian economy went through significant changes. The
country liberalized its financial markets and trade, it successfully implemented a
price stabilization program and it undertook a privatization of state-owned
enterprises in infrastructure and commodities industries. These changes had a
major impact on the country’s institutional framework and changed the behavior
of economic agents in Brazil. Firms have changed their conduct in order to take
into account new patterns of performance. They had to face a new competitive
environment, with greater exposure to international competition, and took new
positions in the international division of labor. Economists have recognized these
factors as the main causes of the industrial restructuring process in the period.

Nonetheless, economists do not seem to have a consensus over the extent

of industrial change in the period. On the one hand, some economists argue that
the increase in the competition has eliminated firms and whole sectors that
showed low levels of competitiveness. They hold therefore that the new
environment has strengthened the country’s productive sector and that surviving
firms and sectors are more capable to face international competition (Mendonça
de Barros and Goldenstein 1997, Franco 1999, Moreira 1999). On the other hand,
some other economists maintain that the adoption of defensive behavior, mainly
based in cost reduction strategies, have made possible the survival of less capable
firms. In these cases, in order to survive firms have reduced their investment,
endangering their long-term expansion perspectives (Ferraz, Kupfer and
Haguenauer 1996, Coutinho 1997, Gonçalves 1999 and Laplane et al. 2000).
Furthermore, the greater level of trade openness and financial liberalization may
have deepened asymmetries between national and multinational enterprises
(MNE). Private national enterprises became more vulnerable to takeovers by
MNE. Therefore, not only domestic enterprises have weakened their investment
perspectives; they have become also easy targets for acquisition, which may have
a negative effect on greenfield investment.

*
The authors are grateful for support offered by CEPAL, PIBIC/CNPq, FAPERJ and Thomson Financial
Securities Data. This work could not be accomplished without the assistance of Ana Paula Meireles, Alan
Oliveira and Mariana Lemos Alves. The authors are grateful for comments received from João Carlos
Ferraz e José Carlos Miranda.
#
Adjunct professors at the Instituto de Economia/Universidade Federal do Rio de Janeiro.
 2

This paper aims to shed some light into this debate, covering three topics:
(i) the evolution of Brazilian leading companies in respect to their sectoral
composition and the origin of their capital (national, state or foreign);
(ii) the effects of productive transformations of leading companies on their
competitiveness and on market structure; and
(iii) the direction of growth of leading companies, focusing on the merger and
acquisition (M&A) process.

The paper will be divided in three parts. The first part focuses on the main
methodological features of the paper. The second part is dedicated to the analysis
of structural transformations occurred in the Brazilian productive sector during
the 90’s, based on a sample covering leading companies. That part will focus on
the description of the evolution of the productive structure in respect to sectoral
and nationality composition. The description of these features aims to capture the
impacts of institutional changes over business performance. The third part of the
paper will analyze the M&A process in Brazil emphasizing their role in the
shaping of growth direction of leading companies.

1. Methodological Notes

The empirical analysis of this paper is based in two data sets. The first database
uses information published by Balanço Anual da Gazeta Mercantil on Brazilian
biggest companies for the years 1991, 1996 and 1999. The choice of these years
aims to separate two distinct phases of the M&A process. From 1991 to 1996
there was the prevalence of transaction in the manufacturing sector and from
1997 to 1999 transactions in the service sector prevailed. This division also
coincides with different moments of the privatization process. In the first period,
the government privatized its commodities companies and the second period is
recognized by the privatization of infrastructure enterprises.

Company size is measured by sales. This choice was due to the better
quality of the information on sales than on net worth. However, the use of sales
as indicator for size has some shortcomings. Though sales seems to be an
adequate measure for size in the manufacturing sectors, it is not adequate for
evaluation of size in the financial sector. This is especially important in the
Brazilian case due to the very high levels of inflation in the 1991-1993 period.
Therefore, the financial sector has been analyzed in separate.

Firms were aggregated according to the sectoral classification presented in

table 1. The classification was structured in three classes – construction,
manufacturing industry and services. These two last classes were divided in three
different sectors. As stated above, most part of the paper will analyze the
financial sector in separate.

TABLE 1 HERE
 3

The classification of the leading companies into each category took into
account the main sector of production. In the case of diversified companies, the
ideal procedure would require the allocation of sales to each sector of production
it belongs to. Available data, however, does not allow such procedure..

The origin of capital was defined taking into account the nationality of the
headquarters. Companies were classified into three different categories: state-
owned enterprises (SOE), private national enterprise (PNE) and multinational
enterprises (MNE). In most cases, the information available in the Balanço Anual
was sufficient for an adequate classification.

In order to build the sample of firms, all companies or business groups 1

with sales ove r US$ 35 million in each of the three periods covered by the
database – 1991, 1996 and 1999 – were selected and included in the database.
The sample of leading companies is described in table 2. It shows that there is
fluctuation in the number of companies. In 1991, the sample covers 324
companies, in 1996, it covers 396 and, in 1999, 365. Only 190 companies appear
in all three years, 140 appear in two of the three years and 160 only appear in one
year, leading to a total of 490 companies.2

TABLE 2 HERE

Special emphasis is put into the distribution of the market-share of each

category in the whole sample. Absolute values and variation of the market share
will be understood in this paper as indicators of competitiveness in a previously
defined market. In this framework, the market share expresses the revealed
competitiveness in a certain moment and its evolution in time.

The Herfindahl-Hirschman index (HHI) for each of the seven sectors will
be used as an indicator of economic concentration, that is, the sum of the square
of the market-share of each business group or company in its sector of activity.
This index is commonly used as a measure of concentration in the literature. The
index may have some shortcomings. Many different market structures may be
compatible with the same value of the the HHI index. Furthermore, the database
has information only on leading companies. Therefore, the index will be
capturing economic concentration among leading companies in each sector.

The analysis of the M&A process relies on information collected from

1
From now on, the paper will use the term company to describe independent companies and business
groups.
2
Many reasons may explain the fluctuation in the number of firms. Companies may have been
extinguished or sold-out; they may have shrunk and left the list of leading firms; new entrants may have
appeared in the markets; and firms may have grown and entered the list of leading companies.
Furthermore, there may be registration failures. The Balanço Anual mainly collects information from
published balance sheets or from spontaneously sent balance sheets. Only open capital companies are
obliged to have their balance sheet publicly published. Therefore, in some years, some companies may
not send their information, being kept out of the Balanço Anual.
 4

M&A transactions listed in the Thomson Financial Securities Data (TFSD). The
TFSD lists 1149 transactions that took place between 1990 and 1999.
Predominantly, they involved acquisitions of companies. Very rarely there were
mergers and only 22% of the transactions involved acquisition of less than 50%
of companies’ stock and less than 10% involved participation lower than 25% of
companies’ stock. The transactions are unevenly distributed across period and
sector. The 1990-1996 period covers 37.9% of all transactions, while the 1997-
1999 period harbors 62.1% of the transactions. In the first period, there is
prevalence of transactions in the industrial sector, while in the second period the
presence of transactions involving service companies is more intensive (see table
3).

TABLE 3 HERE

The TFSD provides also data on the value of the transactions. However, as
table 3 shows, in only 49% of the events the value of the transaction was
revealed. Furthermore, privatization transactions have a much higher probability
to have their value revealed than transactions between private parties. As a
consequence, the use of data on the value of the is not reliable. The TFSD also
furnishes information on the nationality of the target and the acquiring firm.
However, in some cases when the acquirer was a nationally established
subsidiary of a MNE, the TFSD database classified the subsidiary as a national
firm. Further research was done, using the Dun and Bradstreet’s Who Owns
Whom CD-ROM, to classify the nationality of these subsidiaries according to the
country of the parent company. Therefore, as stated above, the nationality
considered refers to the firm’s headquarters.

Data was organized in order to cover two different points of view. The
first uses the acquiring firm as the basic unit of analysis. In that case, the aim is
to address the productive diversification or specialization character of the
strategy undertaken by the firm. Two indicators were built to cover this first
topic:
(i) the sum of acquisitions of firms in the same sector “r” of the acquiring
firm divided by total acquisitions by acquiring firms of sector “r”. This
indicator will be 1 whenever all acquisitions are concentrated in the main
sector of production of the acquiring firm and will have value 0 whenever
none acquisition is made in the same sector of the acquiring firm;
(ii) the numbers-equivalent index of the acquisitions by firms that belong to
1
sector “r”, defined as NEA = n
, where pir is the share of target
∑ (p )
2
ir
i =1

firms of sector “i” in the total acquisitions of firms that belong to sector
“r”. This indicator will assume value 1 whenever firms that belong to
sector “r” acquire firms from only one sector. The greater the level of
diversification of the purchases, the greater NEA will be.
 5

The second point of view considers target firms as the unit of analysis,
allowing the evaluation of the sectoral origin of the acquirers in a certain sector.
In order to cover this topic, two indicators were made:
(i) the share of acquiring firms of sector “r” in total transactions involving
target firms of sector “r” (srr);
(ii) the numbers-equivalent of the level of diversification of the acquirers in
1
sector “r”, expressed by NES = n
, where sir is the share of sales
∑s
i =1
2
ri

transactions of firms of sector “r” that have acquiring firms from sector
“i”.3

The classification of sectors into broad categories seemed inadequate for

the analysis of diversification pattern. Thus, a special sectoral classification
provided by TFSD was used. In order to have indicators that significantly
represent the outcomes of the M&A process, only those sectors that had over 10
purchasing and selling transactions were examined. Therefore, from the 56
sectors listed in the database, only 27 remained (see table 1 for an analysis of the
classification of the sectors).

2. Structural Transformations in the Brazilian Productive Sector

This section will analyze structural transformations that took place in the
Brazilian economy during the 90’s. The unit of analysis are leading companies in
the industrial and services sectors. The section describes the evolution of the
productive structure and changes in the sectoral and ownership composition,
attempting to gather elements to examine the impacts of institutional and
macroeconomic changes over the productive structure.

2.1 The Evolution of Leading Companies

Table 4 shows the evolution of the sectoral distribution of sales of the

leading companies in the database. The only major difference is the loss of
participation of Construction Companies. Their market-share loss seems to have
been evenly distributed across the other sectors in table 1. The stable evolution of
industries’ market-share is in line with the conclusion of other studies (see
Kupfer 1998). It may be seen as well that companies in services industries have
shown a greater increase in their relative market-shares during the 1996-1999
period, while companies in the industrial sectors have achieved better
performance in terms of market-share during the 1991-1996 period.

3
There is an important shortcoming in this analysis. In order to calculate these diversification indicators,
a sectoral classification has been used As has been emphasized by Teece et al. (1994), the chosen level of
aggregation may be too broadly or too narrowly defined. The classification here used was obtained from
TFSD. It more or less corresponds to a two-digit ISIC classification. The use of such classification will
normally classify sectors too broadly.
 6

TABLE 4 HERE

However, the distribution of sales across nationalities has suffered a major

change in the period. SOE have decreased their market share from 44.6% in 1991
to 24.3% in 1999; MNE have increased their market share from 14.8% to 36.4%
of the total sales of the firms in the sample, while PNE have maintained a stable
share in the period. It is important to register that the 1991-1996 and the 1996-
1999 periodos show different trends. SOE lose most of their market share in sales
in the 1991-1996 period. In this period, PNE increase their market share by 3.5
percentage points. Therefore, the increase of the market-share of MNE in the first
period is due almost exclusively to the decrease (privatization) of SOE. In the
second period, SOE’s market-share still decreases, though not in the same rate,
and the market-share of PNE shifts from 44.1% to 39.3%. Therefore, the increase
of MNE’s market-share is due to both privatization of SOE and the decrease of
PNE’s sales share (see graph 1).

GRAPH 1 HERE

MNE seem to have increased their market-shares in all sectors analyzed

with the sole exception of Construction Companies. The causes of this shift seem
to differ across sectors and period of analysis. In the commodities industries, the
gains of market share of MNE were accompanied by a loss in the market-share of
SOE and an increase in the market-share of PNE. During the 1991-1996 period,
the main force of market-share gains for MNE in the commodity sector seem to
be the privatization of SOE, for, as it can be seen in table 5, the market share of
PNE has increased in the period. However, in the period 1996-1999, the increase
in the market-share of MNE was due to the transference of assets from PNE to
MNE. In the technology intensive industries, the increase in the market-share of
MNE confirms their leading position in Brazil. They increased their participation
in the total sales of the sample from 60%, in 1991, to 86%, in 1999. This growth
implied a decrease in the share of PNE from 24.4 to 13.1%. In traditional
manufacturing industries, where historically there has been prevalence of PNE,
MNE showed an increase in their market-share as well.

TABLE 5 HERE

Services industries shows a greater diversity of trends. The analysis of

table 5 reveals transference of market-share from SOE to private enterprises. In
the 1991-1996 period, the growth of the market-share of PNE overcomes the
growth of MNE, while in the 1996-1999 period, MNE show a greater increase of
their market-share. In the infrastructure sector, SOE show the greater loss of
market-share. However, the transference from the state to the private sector is
concentrated in the 1996-1999 period. Both PNE and MNE show an increase of
their market-shares. In the other services sector, PNE lose market-share to MNE.
It is however important to note that other services is the only sector of our
 7

analysis where PNE remain in a clear leading position.

2.2 Changes in Concentration

Graph 2 shows the Herfindahl-Hirschmann index for the seven sectors in

the three years covered by the database. The absolute value of the HHI lack
interest due to the high level of aggregation used in the definition of the seven
sectors examined. However, their relative values across years in graph 2 may
help to understand how institutional and macroeconomic reforms impacted
industrial structure and the relative weight of leading companies during the 90’s.

During the 1991-1996 period, Construction was the only sector to show
greater concentration. All others presented a decrease in concentration levels. In
the 1996-1999 period, Construction Firms remained in their concentration trend,
Commodities Industry, Traditional Manufacturing and Financial Sector changed
their previous trajectory and increased their concentration level while technology
diffusing manufacturing, infrastructure and other services maintained their
trajectory towards lower levels of concentration.

GRAPH 2 HERE

Two main factors may explain changes in concentration levels of these

sectors:
(i) differences in the rate of growth of firms in the same sector; and
(ii) changes in the number of firms producing in the same sector.

In the first case, concentration will take place whenever bigger firms show
greater rates of growth than small firms, inversely, lower HHI will appear when
small firms exhibit higher growth rates when compared with bigger ones. In both
cases HHI changes will express differences in the composition of relative firm
size. As firm sizes become more homogeneous concentration levels will decrease
while concentration levels will improve as the market shows greater
heterogeneity of firm sizes.

Changes in the number of firms may occur due to the entry of new firms
or the exit of already existing firms and due to mergers, acquisitions, and to the
fragmentation of an enterprise into different firms. Entries and firm
fragmentation result in lower levels of concentration while the exit, merger or
acquisition of firms will provoke higher levels of concentration.

The causes of changes in the concentration index seem to differ across

sector. The commodities industries and the infrastructure sector seem to have
been highly influenced by privatization and merger and acquisition processes.
Most SOE in the commodities industries were privatized during the 1991-1996
period. Some of these transactions involved former holding companies that were
fragmented into different companies; other transactions represented the selling of
 8

minor participation of these holding companies in some companies in the

petrochemical sector. This may have implied the decrease in the level of
concentration of the commodities sector observed in graph 2. The increase in the
concentration index in the commodities industries during the 1996-1999 may be
a consequence of the reselling of recently privatized companies. Some figures of
this process may be observed in table 6. It can be seen that of the total of 69 total
transactions with privatized companies, 26 were post-privatization transactions
between private parties. In these latter cases, most of the purchasing parties were
MNE.

TABLE 6 HERE

The decrease in concentration levels of the infrastructure sector was also

due to privatization transactions, mostly held in the 1996-1999 period. Some of
these transactions involved the fragmentation of SOE. However, another factor
played a major role in this case. In the telecommunications sector, there was a
great deal of new entries in mobile phone, fixed phone and long-distance calls.

Changes in the concentration in traditional manufacturing are more likely

to be explained by differences in the rate of growth, mainly in the food industry,
and by M&A transactions. During the 1991-1996 period, there was a rapid
expansion of demand in those industries that provided room for recently
established MNE. Some of the expansion of these enterprises was made through
the acquisition of smaller enterprises. In this situation, the type of concentration
index constructed produces a decentralization effect. As it was explained above,
the database deals solely with leading companies. Therefore, though the
acquisition of small companies by leading enterprises may have a positive
influence on concentration indexes, in the sample used, this may result a decrease
in the levels of concentration for it may result in a better distribution of sales
across leading companies. The slight increase in the concentration index during
the 1996-1999 period may be due to the slow down of demand and the
consolidation of market-share of recently established MNE.

In the technology intensive industries, the lowering in the concentration

levels along the whole period seems to be explained by the entry of MNE. This
may specially be true in the motor vehicles sector where there was a large
expansion in the number of companies producing in Brazil.

Finally the lowering in the concentration levels of other services may be

explained by the emergence of big companies in new dynamic sectors such as
information technology.

3. The M&A Process

 9

The above analyzed evidence helps to assess the growth perspectives of firms in
Brazil. However, they do not have much to say about the direction of growth.
Nonetheless, the direction of growth is also eonomically relevant because:
(i) it may establish productive trajectories followed by firms; and
(ii) it may unfold possible specialization and diversification strategies
according to nationality.

The data shows that M&A process in Brazil was not driven by high levels
of diversification of acquiring firms. Only 37% of the acquisitions had targets
that did not belong to the acquirers’ main sector of production (see column F of
table 7). The number equivalent index for diversification activities (NEA), in
table 7, column D, also indicates low levels of diversification of productive
activities. Furthermore, it seems that few sectors are biasing these results
upwards. Only 7 out of 22 sectors had above average diversification rates (NEA)
and 12 out of 22 sectors had NEA under 2. Thus, results are biased upward by
the presence of three sectors that concentrate most of the diversifying
transactions: investment firms and the wholesale sector. These sectors seem to
have very good reasons to show high diversification M&A activity. Investment
firms were major participants in the privatization process. Sometimes they were
formed as consortia of different firms to fulfill the requirements or to collude to
bid in the privatization process.

TABLE 7 HERE

In addition, it should be noted that PNE have lower propensity to adopt

diversifying strategies than MNE. When the sample of acquiring firms is split
into two, leaving all transactions with PNE as purchasers, on the one side, and all
transactions with MNE, on other side, PNE show lower NEA index. The NEA
index arithmetic average for PNE acquisitions is 2.4, against a NEA index
arithmetic average for MNE of 3.0. This difference is significant at the 1% level,
when a mean difference test is undertaken. This difference may be explained by
two types of arguments. First, PNE may be adopting less diversifying strategies
due to their lower level of diversification. When compared to MNE, PNE are
quite small firms and therefore should be less likely to present high levels of
diversification. Second, these figures may be revealing defensive strategies
adopeted by PNE. In order to face external competition, PNE may be selling their
assets in sectors of production where they have little competitive advantage and
may be specializing in those sectors where they present competitive advantage or
at least where they still find themselves protected.4
4
It should be stressed that these figures are based in TFSD sectoral classification. This classification
presents two important shortcomings concerning our purposes: (i) it is more or less compatible with two-
digit SIC classification. Most international studies are based in less aggregated sectoral classifications
(see Ravenscraft and Scherer 1987). This feature may induce a bias towards lower levels of
diversification than other studies; (ii) it takes into account only the main sector of activity of each firm.
Therefore, in some cases, firm may be already diversified towards some sector but the TFSD does not
allow specific knowledge about it. For instance, this was the case of Thyssen. Thyssen has been classified
by TFSD as a Metal Products firm. It is however also a player in the Machinery sector. Whenever
Thyssen bought a Machinery firm, the transaction was classified as a diversifying transaction.
 10

A second important information delivered in table 7 is related to the sector

of origin of acquiring firms in each sector. Whether acquiring firms come from
the same sector of production or from different sectors of production may give
valuable information on the effect of M&A over market structure. If most
acquiring firms come from the same sector of target firms, then, M&A should be
having a concentrating effect on market structure, unless acquirers are new
entrants in the markets5; if targets and acquirers have different sectors, then
M&A should have little direct effect on market structure. Column E in table 7
shows for each sector the percentage of acquiring firms that belonged to the
same sector of the target firm. The arithmetic average shows that only 52% of
total acquirers belonged to the same sector. The equivalent number for the
diversification for purchasing firms is on average 2.9. However, it should be
stressed that the dispersion is much lower than the NEA variable. In average
there were acquiring firms of three different sectors in each sector. Only seven
sectors had equivalent numbers for the diversification of purchasing firms under
2. No sector had this statistics over 6.

A third feature to be extracted from table 7 is the very high participation

of MNE as acquirers. This may explain the increase in participation of MNE in
the Brazilian productive sector. It should be stressed however that the figures
presented in table 7 account for both new entrants in the Brazilian markets and
firms that were already producing in the country. The effects over the productive
structure should be quite different. In the former case, acquisition should have a
neutral effect on concentration rates. In the latter case, acquisitions may have a
concentrating effect on market structure.

The three features established above may be considered as important

consequences of the M&A process over market structure. Growth strategies
undertaken by firms may be classified as specializing or diversifying.
Specializing strategies will be achieved whenever firms buy assets in their main
sector of activity, whereas a diversifying strategy will be achieved when firms
buy assets outside their main sector of activity. If strategies are mainly
specializing there should be a tendency towards concentration. There may be one
important exception to the concentration effect of specializing strategies. As
stated above, the concentration effect will not be present if the acquiring firm is a
newcomer to that geographic market, that is, in our case if the firm is a
multinational. Diversifying strategies may be an indication of either great
potential of growth of existing firms or slow growth of the market where firms
are established.

New entry through M&A may occur in two modes. Firms may come from
different sectors of activity or they may come from different geographic markets.

5
For instance, MNE with no previous participation in Brazil
 11

The direct effect of new entry should not be concentrating. In fact, entry may
diminish concentration depending on the characteristic of the acquired firm. If
the acquired firm is a one unit firm, there shouldn’t be any effect of the change of
ownership over market structure. However, if the target firm was a unit of a
greater enterprise that had adopted a strategy of fragmentation of its parts, then,
the effect should be a decrease in concentration. This should be quite important
in the Brazilian case due to the privatization process that broke apart SOE in
telecommunications, petrochemical and energy sectors.

The effects of the M&A process over market structure should then vary
across sectors and their main characteristics such as level of technology, previous
state participation, rate of growth, importance of brand names, etc. Table 8
provides us with a taxonomy of sectors according to the strategy of acquiring
firms that belong to the sector (specializing or diversifying strategies), the
sectoral and national origin of acquiring firms. The classification of each sector
into each category was established by comparison with the arithmetic average of
each characteristic. If the sector had a specialization index (column F of table 7)
above 63%, it was considered to have implemented a specializing strategy, under
63%, it was classified as a diversifying strategy sector. Table8 shows that two-
thirds (18 out of the 27) of the sectors appear to have firms that pursue a
specializing strategy, while in 1/3 of the sectors, M&A activity seem to reflect
the adoption of diversifying strategies by firms.

TABLE 8 HERE

3.1 Specializing Strategies

In those sectors where there is the prevalence of specializing strategies, nine

sectors show intensive entry of acquiring firms from other sectors and nive
present low entry of acquiring firms from other sectors. As stated above, sectors
with M&A specializing strategies are more likely to present higher rates of
concentration. However, this will depend on two important features:
(i) if firms come from different geographic markets, specialization strategies
will not end up in higher concentration indexes;
(ii) if firms from other sectors enter the sector (wither by new investment or
acquisition), concentration may not arise. A specializing strategy may
denote low entry barriers and, sometimes, weak growth potential of the
firms in comparison with the market’s possibilities, that is, entry with
specializing strategies from incumbents may imply that the sector has
greater opportunities than firms in that sector can absorb or simply.6

6
The following analysis relies on arguments that involve rate of growth of different sectors. The
measurement of growth of the sectors in table 8 is quite diffcult, due to problems of aggregation in the
main official databases. Therefore, the paper relies on information from secondary sources. Rodrigues
(1999), Bonelli and Fonseca (1998), BNDES (2000) are recommended for further information on the
subject.
 12

The adoption of specializing strategies may be divided into six categories:

(i) traditional sectors, with low product differentiation, where firms show low
level of diversification potential and the sector does not show high rate of
growth. This is the case of textile and apparel products, printing,
publishing and allied services and stone, clay, glass and concrete products;
(ii) high rate of growth sectors, where the entry of MNE has dominated M&A
process. This is the case of food and kindred goods, advertising services,
transportation equipment and business services;
(iii) recently privatized sectors that, constituted good opportunity for shor-term
profit. In this case, firms from other sectors and countries entered the
market by acquisition. In a second phase, there was a restructuring of the
sectors and recently privatized firms were resold to firms that belonged to
the same sector of privatized companies. This is the case of
telecommunications, chemicals and allied products, electric, gas and water
distribution and transportation and shipping;
(iv) high technology sectors that attracted foreign acquiring firm due to the
opening of the economy.7 This is the case of transportation equipment and
machinery;
(v) exporting sectors with very high rates of growth and dominated by PNE,
such as peper and allied products and agriculture, forestry and fishing; and
(vi) service sectors still protected by legislation, such as radio and television
broadcasting and insurance.

Low Entry from Other Sectors

Nine sectors out of the eighteen sectors with firms that predominantly adopt
specializing strategies showed low entry from other sectors and the adoption of
specializing strategies. These nine sectors included all traditional manufacturing
(printing; stone, clay, glass and concrete products; food; and textiles) in our
sample, three other services sector (radio and television; advertising; and retail
food stores), one technology intensive sector (drugs), and one financial services
sector. All manufacturing sectors involved have very low level of technology.

When sectors are divided according to the intensity of participation of

MNE as acquiring firms a clearer scenario is unfold. Four sectors showed high
rates of internationalization: food, stone, glass, clay and concrete products,
advertising and drugs. With the exception of stone, clay, glass and concrete
products, the other three sectors are either high technology – and therefore the
presence of national enterprises was due to greater international exposure to
competition afterthe institutional reforms – or show a very high perspective of
growth. This should be true for food (see Rodrigues 1999), due to its ve ry high-
income elasticity in Brazil, and also for advertising. The case of the food industry
is quite interesting because the entry through acquisition was part of the global
competition strategy of some of the MNE present in Brazil.

7
This process will be explained later.
 13

The five sectors with low rate of internationalization may be divided into
two groups. The traditional manufacturing sectors showed very low perspectives
of growth and had a strong decrease in size during the period. In the case of
textiles the liberalization of imports has impacted very strongly the sector. The
services sector seems quite different. In radio and television broadcast, legislation
is still quite severe on foreign ownership. The food retail sector showed a very
strong concentration structure in the period with the establishment of quite high
barriers to entry (BNDES 2000). It should nonetheless be stressed that though
these sectors show lower internationalization rates, the level of
internationalization has increased during the period and the participation of MNE
in total acquisition is quite high (see table 7).

High Entry from Other Sectors

There were nine sectors with high level of participation of acquiring firms from
other sectors: telecommunications; machinery; electric, gas, and water
distrubution; transportation equipment; business services; chemicals and allied
products; transportation and shipping; paper and allied products; agriculture,
forestry and fishing.

Three of the nine sectors with high entry from other sectors are
commodity industries – chemicals and allied products, paper and allied products
and agriculture, forestry and fishing – three sectors are classified as infrastructure
sectors – transportation and shipping, electric, gas and water distribution and
telecommunications – two belong to technology diffusing manufacturing
industry – machinery and transportation equipment – and one is a service sector.

Four out of these nine sectors were part of the government privatization
process: chemicals and allied products and the three infrastructure sectors. Some
acquisitions in infrastructure were made through firm consortia that are here
classified in the investment firms sector; others in transportation had as acquirers
former construction firms. The opportunities of short term profit provided by the
purchase of SOE seems to be an important driving force to explain the diversity
of acquirers in these cases.8

The presence of machinery and transportation equipment in this category

cannot be separated from the fact that most entries are from multinationals. The
liberalization of the Brazilian market created a major threat for national high tech
firms. Accustomed to protected markets, these firms would be facing new
competition and were in danger of losing market share. Nonetheless, they had a
solid position in the market and contained valuable assets. The entry of MNE
was unavoidable. However, MNE could follow two different patterns. They
could engage in green field investment and then attempt to displace well-
established national firm or they could acquire some of these firms. The bargain

8
Graça (2001) finds that acquirers of SOE earned very high profits immediately after the privatization
process.
 14

should be between two extremes: the present value of national enterprises and the
cost of new investment plus the cost of displacing competition. Any asset price
between these two extremes would be advantageous for both parties. Most firms
followed the latter option.9

The three cases where national acquirers seem to have greater presence –
transportation and shipping, agriculture, forestry and fishing and paper and allied
products – seem to have one important thing in common: great advantage for
national enterprises. Some of the transactions in transportation and shipping
involved the acquisition of the administration of roads by contruction companies.
Agriculture, forestry and fishing and paper and allied products are amongst the
major exporting sectors of Brazil and are dominated by PNE.

3.2 Diversifying Strategies

Diversifying strategies could only be identified in 9 sectors: mining; electronic

and electrical equipment; investment firms; commercial banks; oil, gas and
petroleum refining; rubber and miscelaneous plastic products; wholesale trade
(durable goods); whosale trade (nondurable goods) and metal and metal products.
These sectors may be divided into three different groups:
(i) financial investment – in this category are investment firms and
commercial banks. Investment does not have productive character. It is
mainly directed to portfolio diversification investments (and then are
composed by acquisition of minority shares) or to short-term gains,
mainly investment firms buying privatized enterprises;
(ii) verticalization of activities – oil, gas and refining, rubber and plastics,
mining and the two wholesale sectors fall in this category. Acquisition of
firms from other sectors aim the verticalization of their activities in the
same productive chains; and
(iii) productive pervasiveness – this is the case of electrical and electronics and
metal and metallurgy. In this case, acquiring firms are usually more
diversified and have their main sector of production located elsewhere.

Low Entry from Other Sectors

Four sectors present low entry from firms from other sectors: mining, electronic
and electrical equipment, investment firms and commercial banks. Two sectors
have an intensive presence of MNE: mining and electronic and electric
equipment. The electronic and electric equipment sector is the classical case of

9
One example of the stylized fact described above may be found in the acquisition of Metal Leve by
Mahle of Germany. However, though Metal Leve is classified as a transportation equipment firm, Mahle,
due to its diversified multinational structure, is classified as an electronic and electric firm. The
acquisition of Elevadores Sur, a machinery industry, by Thyssen a diversified multinational classified as
Metal is another example of this process.
 15

acquisition of high tech firms by multinational enterprises descrived above.10 In

this sector, though in some cases, foreign acquirers were already present in the
market, one should not expect a great influence of the M&A process in the
market structure. Furthermore, as entry is usually achieved through acquisition of
existing assets, it should have little influence in the lowering of concentration.

The commodity and investment firms and commercial bank present low
entry from other sector and low participation of MNE. Acquired and acquiring
firms in Investment Firms sector are quite different and should be analysed in
separate. The acquirers from this sector are mostly consortia that play an
important role in the privatization process, mainly in the acquisition of
infrastructure companies. However, acquired firms from this sector are usually
small brokers in the Stock Market or firms that gather consumers in consortia for
the acquisition of durable goods, such as motor vehicles, which may be a way for
long term financing for the purchase of such goods. Usually there is little interest
of big MNE in the purchase of this type of firm. Therefore, if the M&A process
is viewed through the role of investment firms as acquirers it should not play an
important role in the investment firm sector, but in infrastructure. If the M&A
process is seen by the point of view of the acquired firms in the investment firm
sector, the influence over the concentration rates presented above should not be
very important due to the small size of the acquired firms and the small role
played by big firms in such acquisitions.

Though the participation of foreign acquirers in the transactions involving

commercial banks is not as intensive as in other sectors, when the value of
transactions is analyzed MNE may play a more important role. However, it is
likely that this sector presents a slight concentration in its market structure.

High Entry from Other Sectors

Five sectors show high entry from other sectors: oil, gas and petroleum refining;
rubber and miscelaneous plastic products; wholesale trade (durable goods);
whosale trade (nondurable goods) and metal and metal products. There are four
sectors that present a high level of entry with intensive participation of MNE: oil,
gas and petroleum refining, rubber and miscellaneous plastic products; wholesale
trade – durable goods and wholesale trade – non-durable goods. The facts in the
oil, gas and petroleum refining sector may be explained by three important
government policy measures. First, there is the increasing interest in the gas
sector, not only as fuel for thermoelectric generation, but as input for the
petrochemical sector. Second, it should be stressed that the petroleum and gas
sector has suffered a deregulation process in recent years, which attracted the
entry of MNE. Third, the privatization program involved the selling of some of
10
It seems that in this case, the cost of the acquisition of a national company was lower than the cost of
entry through green field investment and conquering market share. In the case of the national company,
the threat of entry by MNE and the new competition faced by the liberalization of the domestic market
created expectations of devaluation of the firms assets, that incentive the interest of owners in selling the
firms.
 16

gas transportation and distribution companies that belonged to different

federative units (estados) in Brazil. The effect over this sector, due to such
deregulation should be a decrease in the concentration.

The acquisition of firms that belong to the rubber and miscellaneous plastic
products sector by firms from other sectors has a high level of dispersion as can
be demonstrated by the NES indicator in table 7. Two transactions have acquirers
from the food sector. In this case, targets are packaging firms and the transactions
seem to reflect verticalization strategies undertaken by the food firms. Other
acquirers come from textiles, metals, drugs, oil and paper sectors. Eight out of
the ten transactions that have rubber and plastic firms as acquirers involve
multinational purchasers. It does not seem that this type of transaction will
conduct to the concentration of the market

In the case of the wholesale sectors, no clear strategies may be established

from available data. Analyzing the transactions, there seems to be the prevalence
of verticalization strategies. In this case, wholesale firms in the durable goods
sector appear to specializing in direction of some durable goods firms. Therefore,
M&A transactions should not be expected to have a strong impact on
concentration rates.

The metal and metal products sector has influence of two types of events.
First, the privatization sector has enhanced the purchase by companies from other
sector due to the already mentioned expectations of short-term gains. Twenty-
eight out of the 85 selling transactions of metal and metal products firms had
investment firms as acquirers. Second, after the privatization, the former SOE
had their ownership restructured and owners interested in long term profitability
took lead of these firms. Due to the fact that mostly transactions involved
previously SOE, M&A should not have a concentrating effect as well.

Conclusion

Since the beginning of the 1980’s the Brazilian industry has been under pressure
to change. This pressure may find its root in the fading power of import
substitution paradigm that guided national development since the post war
period.

The analysis undertaken in this paper suggests that the 1990’s cannot be
characterized as years of strong transformations in industry structure. Instead, the
analysis suggests that the strongest characteristic of the period is the change in
the ownership structure of productive assets. In the sectoral plan, the only
important characteristic is the loss of importance of the construction sector.
Nonetheless, many changes in ownership structure may be identified. MNE have
become pervasive over the whole productive structure. This strongly contrasts
with previous periods when they were concentrated part of the manufacturing
sector. Furthermore, their participation has increased in every sector. SOE
 17

reduced their market-share to about half of its initial size, while PNE more or less
maintained their market-shares. However, PNE were displaced from the
manufacturing sector and have concentrated their activities in the service sector.

The decade may also be characterized by a reduction in the economic

concentration. This result seems to be a consequence of the disintegration of
some SOE into parts sold in the privatization process that took place during the
90’s. In addition, the entry of MNE in the markets through acquisition of already
existing companies or through greenfield investment contributed to the decrease
in the economic concentration levels. It should be emphasized that the results
here reported refer to the analysis of leading companies. Concentration in
particular markets may have different results during the period.

The results from the analysis of the M&A process help to reach sharper
conclusions. On the one hand, acquiring firms seem to have adopted specializing
strategies, when they mainly acquire firms in their main sector of productive
activity. This type of behavior seems to support conclusions towards the
concentration of markets. On the other hand, it is shown that the M&A process is
marked by the entry of MNE. They are the main purchasers of assets and some of
them use acquisition as a means to entry the market. Therefore, the process does
not seem to lead to concentration, due to the presence of new actors in the
marketplace.

In addition, PNE seem to adopt even less diversified strategies than MNE.
This result suggests some support to the idea that PNE have adopted defensive
strategies as a reaction to changes in macroeconomic and institutional conditions
that took place in the 90’s. Thus, this result does not seem to support the ideas of
those that argue that the institutional changes of the 90’s eliminated weaker
companies and sector and strengthened the Brazilian industrial structure. On the
contrary, it suggests that firms were able to survive by the adoption of defensive
strategies.

References

BNDES (2000) – Super e Hipermercados no Brasil: Desempenho Recente.

Informe Setorial n. 21, encontrado na webpage: http://bndes.gov.br,
outubro.

Bonelli, R., Fonseca, R ( 1998 ) –Ganhos de produtividade e de eficiência: novos

resultados para economia brasileira; IPEA; Mimeo;RJ.

Coutinho, L. (1997) A especialização regressiva: um balanço do desempenho

industrial pós-estabilizaçãoin: Velloso, R. (org.) Brasil: desafios de um
país em transformação.

Ferraz, J.C., Kupfer, D. and Haguenauer, L. (1996). Made in Brasil: Desafios

Competitivos para a Indústria Brasileira. Rio de Janeiro. Ed. Campus.
 18

Ferraz, J.C.; Kupfer, D. e Serrano, F. Macro/Micro Interactions: Economic and

Institutional Uncertainties and Structural Changes in Brazilian Industry.
Oxford Development Studies. Vol. 27. No. 3. Outubro de 1999.

Franco, G. (1998) A Inserção Externa e o Desenvolvimento. Revista de

Economia Política, vol. 18. Nº 3 (71), julho-setembro, p. 121-147.

Graça, T. (2001) Ganhadores dos Leilões da Privatização Brasileira Realmente

Ganham: Evidência Empírica de um Estudo de Evento. Trabalho a ser
apresentado no XXIX Encontro Nacional de Economia, homepage da
ANPEC , www.anpec.org.br.

Haguenauer (1989). ). Competitividade: Conceitos e Medidas; TD IEI/UFRJ; n.

211; Rio de Janeiro.

Haguenauer, L., Markwald, R, Pourchet, H ( 1998) – Estimativas do Valor da

Produção Industrial e Coeficientes de Exportação e Importação da
Indústria Brasileira, IPEA, Texto para Discussão nº. 563; BSB.

Laplane M et alli (2000). Empresas Transnacionais no Brasil nos anos 90: fatores
de atração, estratégias e impactos. Relatório de pesquisa.
NEIT/IE/UNICAMP. Campinas. mimeo

Kupfer, D. (1998). Trajetórias de reestruturação da indústria brasileira após a

abertura e a estabilização. Doctoral thesis presented at IE/UFRJ. mimeo

Mendonça de Barros, J. R. e Goldenstein, L. (1997). Reestruturação industrial e

reordenação financeira: um novo balanço. Mimeo

Miranda & Martins (2000) – Fusões e Aquisições de Empresas no Brasil, Estado

e Sociedade, v. 14.

Miranda, J. C. e Tavares, M. C. (1999) Brasil: Estratégias de Conglomeração. In

Fiori, J. L. Estados e moedas no desenvolvimento das nações. Rio de
Janeiro, Ed. Vozes.

Miranda, J.C. (1996 ) – “Reestructuración industrial en em contexto de

inestabilidad macroeconómica. El caso de Brasil”; in Estabilización
Macroeconómica, Reforma Estructural y Comportamiento Industrial;
Jorge Katz (ed.); Alianza Editorial; Buenos Aires.

Miranda, J.C. (2000 ) – Análise do desempenho exportador das 500 maiores

empresas do Brasil; CEPAL/BSB; Mimeo; BSA.

Miranda, J.C., Tavares, M.C. (1999 ) – “Brasil: estratégias de conglomeração”;

in Estados e Moedas no desenvolvimento das nações; J.L.Fiori (org.);
Ed.Vozes;RJ.

Moreira, M. M. (1999) Estrangeiros em uma Economia Aberta: Impactos

 19

Recentes sobre a Produtividade, a Concentração e o Mercado Exterior.

Texto para Discussão BNDES n. 67. RJ.

Moreira, M. M., Correa, P.G. (1996) – Abertura Comercial e industria: o que se

pode esperar e o que se vem obtendo”; BNDES, Texto para Discussão nº.
49;RJ.

Pereira, T., Carvalho, A. ( 1998 ) – Abertura comercial, mark ups setoriais

domésticos e rentabilidade das exportações; IPEA, Texto para Discussão
nº. 571; BSB.

Ravenscraft & Scherer (1987) – Mergers, Sell-Offs, and Economic Efficiency.

Washington,D.C.: Brookings Institution.

Rocha, F. Iootyy, M. e Ferraz, J. C. Desempenho das fusões e aquisições na

indústria brasileira na década de 90: a ótica das empresas adquiridas.
Revista de Economia Contemporânea. Vol 5, Número Especial, 2001.

Rodrigues (1999), R. Empresas Estrangeiras e Fusões e Aquisições: O Caso da

Indústria de Autopeças e de Alimentação/Bebidas em Meados da Década
de 90. Brasília, IPEA, Texto para Discussão n. 622.

Rossi, J.L., Ferreira, P.C. (1999 ) – Evolução da produtividade industrial

brasileira e abertura comercial; IPEA, texto para Discussão nº. 651; BSB

Teece, D.; Rumelt, R.; Dosi, G.; e Winter, S. (1994) Undesrtanding Corporate
Coherence: Theory and Evidence. Journal of Economic Behavior and
Organization 23, 1-30.
 20

TABLE 1:
SECTORAL CLASSIFICATION
GERAL CLASSES SECTORS TFSD SECTORS

CC Construction Companies Construction

Stone, Clay, Glass, and Concrete Products

IC Commodity Industry
Industry
ID Technology Intensive Industry
Ex-SF
IT Traditional Industry
SP Infrastructure
Services
SS Other Services
SF SF SF Financial Services
Metal and Metal Products
Mining
Paper and Allied Products
Oil and Gas; Petroleum Refining
Chemicals and Allied Products
Electronic and Electrical Equipment
Transportation Equipment
Drugs
Machinery
Food and Kindred Products
Rubber and Misc. Plastic Products
Printing, Publishing, and Allied Services
Textile and Apparel Products
Agriculture, Forestry, and Fishing
Electric, Gas, and Water Distribution
Transportation and Shipping (except air)
Telecommunications
Wholesale Trade
Retail Trade-Food Stores
Radio and Television Broadcasting
Business Services
Advertising Services
Commercial Banks
Insurance
Investment Firms
 21

TABELA 2:
NUMBER OF LEADING COMPANIES IN THE SAMPLE BY SECTOR AND
ORIGIN OF CAPITAL
1991 1996 1999
SECTOR SOE MNE PNE Total SOE MNE PNE Total SOE MNE PNE Total
CC 15 15 1 12 13 9 9
IC 12 32 45 89 1 40 52 93 2 36 44 82
ID 1 27 22 50 38 28 66 1 42 16 59
IT 12 34 46 21 44 65 17 33 50
SF 13 7 24 44 15 11 29 55 14 16 20 50
SP 40 4 6 50 49 5 10 64 41 13 14 68
SS 3 3 24 30 8 3 29 40 9 7 31 47
Total 69 85 170 324 74 118 204 396 67 131 167 365
Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology
Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services
Origin of Capital: SOE – State-Owned Enterprise; MNE – Multinational Enterprise; PNE –
Private National Enterprise
Source: GIC/IE/UFRJ – Business Group Database.

TABLE 3:
NUMBER OF M&A TRANSACTIONS AND VALUE OF TRANSACTIONS
BY PERIOD AND SECTOR, BRAZIL, 1990-1999
1990 to 1996 1997 to 1999 Total
Number of Transactions with Value

Number of Transactions with Value

Number of Transactions with Value

Number of Transactions

Number of Transactions

Number of Transactions
Total Value

Total Value

Sector of Total Value

Declared

Declared

Declared
%

%
Acquirer

CC 0 0,0 0 0,0 0,0 2 0,3 0 0,0 0,0 2 0,2 0 0,0 0 0,0

SF 32 7,4 17 8,5 246 1,0 60 8,4 31 8,5 9197 10,0 92 8,0 48 8,5 9443 8,0
IC 168 38,6 96 48,2 12343 49,3 136 19,0 80 21,9 10435 11,3 304 26,5 176 31,2 22778 19,4
ID 74 17,0 24 12,1 1128 4,5 95 13,3 38 10,4 2611 2,8 169 14,7 62 11,0 3739 3,2
IT 55 12,6 18 9,0 1603 6,4 76 10,6 37 10,1 3586 3,9 131 11,4 55 9,7 5189 4,4
SP 43 9,9 24 12,1 6229 24,9 150 21,0 118 32,2 59728 64,7 193 16,8 142 25,1 65957 56,2
SS 53 12,2 14 7,0 1059 4,2 169 23,7 49 13,4 4927 5,3 222 19,3 63 11,2 5986 5,1
HC 10 2,3 6 3,0 107 0,4 26 3,6 13 3,6 1876 2,0 36 3,1 19 3,4 1983 1,7
Total 435 100,0 199 100,0 25015 100,0 714 100,0 366 100,0 92360 100,0 1149 100,0 565 100,0 117375 100,0
Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology
Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services; HC – Holding Companies
Source: Own elaboration from Thomson Financial Securities Data, 1990-1999.
 22

TABLE 4
EVOLUTION OF SECTORAL DISTRIBUTION OF SALES (EXCLUDING
SF)
(%)
Sector 1991 1996 1999
CC 12,8 3,6 2,8
Industry 50,4 58,2 55,2
IC 24,1 25,4 26,8
ID 14,5 19,1 18,0
IT 11,8 13,7 10,4
Services 36,8 38,2 41,8
SP 25,8 25,8 29,5
SS 11,0 12,4 12,3
Total 100,0 100,0 100,0
Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology
Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services
Origin of Capital: SOE – State-Owned Enterprise; MNE – Multinational Enterprise; PNE –
Private National Enterprise
Source: GIC/IE/UFRJ – Business Group Database.
 23

GRAPH 1:
THE EVOLUTION OF THE SHARE OF SALES OF LEADING COMPANIES
BY ORIGIN OF CAPITAL (EX-SF)

100%

80%

60%
%
40%

20%

0%
1991 1996 1999
PNE 40,6% 44,1% 39,3%
MNE 14,8% 26,4% 36,4%
SOE 44,6% 29,6% 24,3%

YEAR
SOE MNE PNE

Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology

Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services
Origin of Capital: SOE – State-Owned Enterprise; MNE – Multinational Enterprise; PNE –
Private National Enterprise
Source: GIC/IE/UFRJ – Business Group Database.
 24

TABLE 5:
SHARE OF SALES BY ORIGIN OF CAPITAL
Setor Ano E M N
1991 0,0 0,0 100,0
CC 1996 0,0 0,0 100,0
1999 0,0 0,0 100,0
Industry
1991 42,4 21,2 36,5
IC 1996 22,6 29,4 47,9
1999 25,8 33,1 41,1
1991 0,8 60,3 38,8
ID 1996 0,0 75,6 24,4
1999 0,0 86,9 13,1
1991 0,0 36,5 63,5
IT 1996 0,0 44,6 55,4
1999 0,0 48,5 51,5
1991 20,5 36,0 43,5
Industry Total 1996 9,9 48,2 42,0
1999 12,5 53,5 34,0
Services
1991 56,5 8,0 35,5
SF 1996 39,0 6,4 54,6
1999 34,3 21,3 44,4
1991 74,1 16,9 9,0
SP 1996 76,9 12,5 10,6
1999 42,9 32,2 24,9
1991 1,1 7,8 91,1
SS 1996 4,4 18,2 77,4
1999 5,4 27,1 67,5
1991 55,5 9,4 35,1
Services Total 1996 46,4 10,5 43,0
1999 33,0 26,1 40,8
Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology
Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services
Origin of Capital: SOE – State-Owned Enterprise; MNE – Multinational Enterprise; PNE –
Private National Enterprise
Source: GIC/IE/UFRJ – Business Group Database.
 25

GRAPH 2:
HERFINDAHL INDEX: EVOLUTION BY SETOR

4000

3500

3000

CC
2500
IC
ID
2000
IT
SF
1500 SP
SS

1000

500

0
1991 1996 1999
CC 1658 2327 3713
IC 725 674 831
ID 666 602 479
IT 564 368 418
SF 866 782 906
SP 1071 684 517
SS 728 641 529

Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology

Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS – Other Services; SF –
Financial Services
Origin of Capital: SOE – State-Owned Enterprise; MNE – Multinational Enterprise; PNE –
Private National Enterpris e
Source: GIC/IE/UFRJ – Business Group Database.
 26

TABLE 6
PRIVATIZATION AND POST-PRIVATIZATION TRANSACTIONS IN THE
INDUSTRY OF COMMODITIES, ACCORDING TO THE ORIGIN OF
CAPITAL OF THE ACQUIRING FIRM, BRAZIL, 1991-1999
Origin of Capital Post Privatization Privatization Minority Privatization Total

Mixed 1 1 0 2
Multinational 11 0 3 14
National 13 16 20 49
Unknown 1 1 2 4
Total 26 18 25 69
Source: Own elavoration from Thomson Financial Securities Data.
 27

TABLE 7
INDICATORS FOR DIVERSIFICATION OF THE ACQUISITION AND DISPERSION OF ACQUIRERS, BRAZIL, 1990-1999
Business Setor Number of Number of Number Equivalent Number Equivalent Share of Acquiring Share of Acquired Share of
Group Selling Acquiring for Acquiring Firm for Acquisition Firms in the Same Firms in the Same Multinational
Sector Transactions Transactions Diversification Productive Sector of Target (E) Sector of (G)
(A) (B) (NES) (C) Diversification Acquiring Firm
(NEA) (D) Setor (F)
IC Agriculture, Forestry, and Fishing 20 11 5,41 2,28 35,0 63,6 63,6
IT Food and Kindred Products 88 80 1,80 1,50 73,9 81,3 73,8
SF Commercial Banks 56 66 2,06 2,82 67,9 57,6 47,0
IC Rubber and Misc. Plastic Products 18 21 3,52 3,90 50,0 42,9 71,4
SS Wholesale Trade -Durable Goods 13 12 7,35 6,00 15,4 16,7 75,0
SS Wholesale Trade -Nondurable Goods 26 25 4,28 4,43 38,5 40,0 80,0
SS Retail Trade-Food Stores 29 22 1,95 1,20 69,0 90,9 59,1
SP Electric, Gas, and Water Distribution 57 30 2,59 2,14 35,1 66,7 73,3
ID Electronic and Electrical Equipment 27 34 2,18 3,19 66,7 52,9 85,3
ID Transportation Equipment 54 31 4,50 1,91 40,7 71,0 77,4
ID Drugs 13 13 1,94 1,99 69,2 69,2 92,3
SF Investment Firms 36 284 2,34 15,12 61,1 7,7 35,6
IT Printing, Publishing, and Allied Services 15 12 2,03 1,41 66,7 83,3 58,3
ID Machinery 44 29 3,90 2,03 45,5 69,0 72,4
IC Stone, Clay, Glass, and Concrete Products 27 29 1,94 2,14 70,4 65,5 86,2
IC Metal and Metal Products 85 57 3,82 2,93 37,6 56,1 63,2
IC Mining 23 24 2,39 2,53 60,9 58,3 79,2
IC Paper and Allied Products 23 17 2,99 1,94 52,2 70,6 52,9
IC Oil and Gas; Petroleum Refining 21 13 5,31 4,12 14,3 23,1 69,2
SS Advertising Services 18 18 1,26 1,26 88,9 88,9 83,3
IC Chemicals and Allied Products 74 43 3,57 1,99 40,5 69,8 86,0
SS Radio and Television Broadcasting 20 17 1,94 1,44 70,0 82,4 64,7
SF Insurance 29 26 1,70 1,38 75,9 84,6 65,4
SS Business Services 76 57 3,67 2,22 50,0 66,7 80,7
SP Telecommunications 68 20 2,35 2,13 19,1 65,0 70,0
IT Textile and Apparel Products 15 11 2,85 1,81 53,3 72,7 36,4
SP Trans portation and Shipping (except air) 41 25 2,50 1,40 51,2 84,0 64,0
Average 37,6 38,0 3,0 2,9 52,5 63,0 69,1
Standard Deviation 23,5 52,3 1,4 2,7 19,2 21,3 14,4
Notes: Sectors: CC – Construction Companies; IC – Commodities Industries; ID – Technology Intensive industries; IT – Traditional Manufacturing; SP – Infrastructure; SS
– Other Services; SF – Financial Services
Source: Own elaboration from Thomson Financial Securities Data, 1990-1999.
 28

Table 8
A TAXONOMY OF THE M&A PROCESS IN BRAZIL, 1990-1999
Nationality of Strategy of Firms in the Sector
Acquirer Specializing Diversifying
Multinational Food and Kindred Products Mining
Advertising Services Electronic and Electrical Equipment

Acquirer from Same Sector

Stone, Clay, Glass, and Concrete Products
Sectoral Location and Nationality of Acquiring Firm

Drugs

National Textile and Apparel Products Investment Firms

Printing, Publishing, and Allied Services Commercial Banks
Retail Trade-Food Stores
Radio and Television Broadcasting
Insurance

Multinational Telecommunications Oil and Gas; Petroleum Refining

Machinery Rubber and Misc. Plastic Products
Acquirer from Different

Electric, Gas, and Water Distribution Wholesale Trade-Durable Goods

Transportation Equipment Wholesale Trade-Nondurable Goods
Sector

Business Services
Chemicals and Allied Products
Transportation and Shipping (except air)
National Paper and Allied Products Metal and Metal Products
Agriculture, Forestry, and Fishing