U.S. doubles M&A spending in emerging markets

Thu Dec 2, 2010 5:10pm EST

* U.S. acquisitions in emerging markets up 94 pct

* M&A in Russia 19 pct of BRIC M&A in 2010

By Megan Davies and Michael Erman

NEW YORK, Dec 2 (Reuters) - U.S. companies have spent nearly double the amount buying assets in emerging markets than they did in 2009, as they seek out economies offering faster growth than at home and try to use up large cash reserves.

Including a PepsiCo Inc (PEP.N) deal announced on Thursday to buy a stake in Russia's Wimm-Bill-Dann LMLKI.RTSWBD.N [ID:nLDE6B119G], the volume of U.S. acquisitions in the emerging markets totals $23.8 billion so far this year, up 94 percent from all of 2009, according to Thomson Reuters Deals Intelligence.

Pepsi's acquisition ranks as the biggest nonfinancialU.S./emerging markets deal on record, Thomson Reuters figures show.

"Given the prospect for low growth in the major markets, companies need to look for growth wherever they can find it," Francis Aquila, a partner at law firm Sullivan & Cromwell, said in an email.

According to the IMF, the U.S. economy is projected to grow just 2.6 percent this year. IMF projections show much faster annual growth from the so-called BRIC countries -- with Brazil at 7.5 percent, Russia at 4 percent, India at 9.7 percent and China at 10.5 percent.

Energy and mining assets have long been attractive targets in the emerging markets as their investments have been driven by the location of resources.

But these countries have also started to take on a larger role for consumer and pharmaceutical companies that have reached saturation point in their home countries.

"As these countries continue to develop and develop a middle class and a consumer class, they are going to be markets that look attractive to foreign companies," said Morton Pierce of Dewey & LeBoeuf.

Other significant deals struck this year by U.S. corporations buying emerging market assets include Abbott Laboratories' (ABT.N) $3.7 billion deal in May to buy the branded generic drugs operations of India's Piramal Healthcare Ltd (PIRA.BO) after beating competition from Western rivals.

"Certainly to the extent that people are looking to expand and are reluctant to do that here, that's an impetus to look outside the United States," said Pierce.

CROSS-BORDER DEALS

In addition to a rise in investment in emerging economies, there has been an increase in cross-border deals. Worldwide cross-border M&A totals $843.2 billion so far this year, up 54 percent from 2009, the data shows. Cross-border M&A accounts for a greater share of worldwide activity this year -- 39 percent compared with 27 percent last year.

"There is more cross-border M&A, but the story to me is really that cross border does not include anymore the EU or U.S.," said Oliver Brahmst, head of M&A at law firm White & Case. "I bet that the lion's share of cross-border M&A work does not involve a U.S. or E.U. border."

Acquisitions of Russian companies by overseas firms has more than doubled from the previous year, Thomson Reuters data shows.

The Wimm-Bill-Dann deal is one of the biggest foreign investments in Russia outside the energy sector. French carmaker Renault SA (RENA.PA) paid $1 billion for a 25 percent stake in Russian carmaker AvtoVAZ (AVAZ.MM) in early 2008 and has pledged more investment in the form of technology.

Coca-Cola Co (KO.N) bought Nidan, Russia's fourth-largest juice maker, earlier this year. [ID:nLDE6731ZM] (Editing by Andre Grenon)

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