UBS has bought Pactual, a Brazilian investment bank, in a deal worth up to $2.5 billion (SFr3 billion) to increase its presence in an emerging market.
Switzerland's largest bank said that Brazil was one of the world's fastest-growing financial markets and therefore a key focus area in its expansion strategy.
The acquisition is subject to regulatory approval, which is expected in the third quarter of this year.
UBS will pay $1 billion upfront for the non-listed private partnership and will pay up to $1.6 billion in five years. The latter payment is dependent on "certain performance conditions", on which UBS declined to comment.
In addition, the Swiss giant has put aside $500 million worth of UBS shares in a retention pool, which will be payable in three tranches. The first payout will take place five years after the deal has closed. All employees would be eligible for participation.
Pactual's businesses will be integrated into the investment banking, wealth and asset management businesses of UBS.
According to the Bloomberg news service, UBS is expanding its investment bank to close the gap with competitors in the United States and it was a good time to do so.
"Considering the upward potential of the economy, now is the right time to move back in. The price they are paying is small change for them," Dirk Becker, an analyst at Frankfurt-based Kepler Equities told Bloomberg.
Staying the course
UBS spokesman Christoph Meier told swissinfo that the retention pool would encourage staff not to jump ship.
"When you do a deal, you want people to stay on board because in investment banking, wealth and asset management you bank on relations and so as an acquirer you have an interest in retaining staff," Meier said.
According to UBS, Pactual is the "leading independent investment bank and asset management firm" in Brazil with a "fast-growing wealth management business".
It is the number one dealer of Brazilian government bonds and is ranked second in both the equity and debt issuance businesses in its home country. It has 517 employees and no job losses are on the cards, Meier explained, as UBS would like to "take all staff onboard".
UBS for its part already has a small presence in the Latin American nation. It has about 100 staff based there, three-quarters of whom are engaged in wealth management. The rest work in investment banking.
Meier said that the acquisition of Pactual was a good fit with UBS.
"The beauty of this deal is that it's complementary to our existing presence and it gives us critical mass, allowing us to grow in Brazil and is a cornerstone of our strategy to penetrate emerging markets," Meier said.
As to why Brazil was an attractive market for the Swiss bank, Meier said the fee pool for investment banking there accounted for 40 per cent of Latin America's investment fee pool.
"This figure gives you an idea of the market potential for investment banking there. Also Brazil is one of the 15 largest economies in the world, the economy will grow another four per cent this year and last year the stock market rose by almost 28 per cent," he said.
However, Meier denied that UBS's strategy to penetrate emerging markets would focus on Latin America.
"This latest transaction is consistent with our strategy to expand in emerging markets... [but] the expansion in emerging markets is not only limited to Latin America," he said.
UBS deals during the past two years include strengthening its investment banking presence in Russia, buying a strategic stake in Beijing Securities last year and setting up a joint venture in the Chinese market in asset management.
swissinfo, Faryal Mirza
Banco Pactual is headquartered in Rio de Janeiro and has offices in Sao Paolo, Recife and Belo Horizonte.
It manages assets worth $18.6 billion.
Its wealth management business looks after $4.6 billion for high net worth individuals.
In Brazil, UBS's investment banking business is ranked fourth in the primary equity market and eighth in the equity trading business.
The deal is UBS's largest takeover since it paid $11.8 billion to buy US brokerage Paine Webber in 2000.
UBS's financial figures for 2005
Net profit: SFr9.844 billion (+28%)
Total attributable profit: SFr14.029 billion (+75%)
Total net new money: SFr148 billion (+80%)
Proposed dividend payout: SFr3.80
Staff at the end of 2005: 69,569 (26,028 in Switzerland)
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