Weekly Update | February 4, 2011

The proposed $3.9 billion buyout of Brazil’s largest airliner, Tam SA (NYSE:TAM) by Chile-based Lan Airlines SA (NYSE:LFL) suffered a jolt last week after Chile’s anti-trust tribunal, TDLC, decided to temporarily suspend the agreement, following objections raised by a consumer group.

TDLC is reviewing the merger agreement to gauge the level of foreign ownership in the combined entity and the impact of the transaction on Chile’s domestic airline industry. Although LAN has asked TDLC to reconsider its decision regarding the probe, we expect the completion of the merger to be delayed well-beyond a year’s time, compared to the original timeline of 6-9 months. Meanwhile, Brazil’s regulator is reportedly unperturbed by the developments, as it stated that it will not seek additional information pertaining to the merger agreement.

Be patient here, despite the substantial dip in TAM shares recently I view this deal as a natural tie-up where both sides win. The acquisition of TAM will give LAN instant and significant presence in the lucrative Brazilian airline market, which clocked 23.5% growth in passenger kilometres to 70.2 billion in 2010. Tam gains substantial marketing and financial flexibility too! Obviously this also implies a rationalization of the routes and resources which is bound to stir up local political resistance.

Over the last week, the top performers in our newsletter service were:

• Compania de Minas Buenaventura S.A. (NYSE:BVN) +7.9%
• Petroleo Brasileiro S.A. (NYSE:PBR) +7.3%
• BHP Billiton Limited (NYSE:BHP) +5.8%
• Cosan Limited (NYSE:CZZ) +5.7%
• Empresas ICA S.A.B. de C.V. (NYSE:ICA) +5.1%