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Last updated: May 9, 2006 9:50 pm

UBS to buy Brazil?s Banco Pactual for $2.5bn

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UBS is to spend up to $2.5bn to buy Banco Pactual of Brazil, reinforcing its investment banking and trading in one of the world?s fastest growing markets.

Switzerland?s biggest bank said Pactual would form a ?key element? in its expansion in emerging markets in its biggest acquisition since the $11.8bn takeover of PaineWebber in the US in 2000.

Pactual is a sizeable domestic equity and bond trader and has an established advisory business. The group also manages institutional assets of $18.6bn and has $4.6bn of private clients? money under management.

Peter Wuffli, chief executive, said: ?Brazil has one of the world?s fastest growing financial markets and therefore is a key focus area for UBS. The combined entity will provide an unrivalled platform for the business to grow in Brazil and throughout Latin America.?

Analysts applauded the move but expressed some concern about the apparently high price.

?This is a high value-added industry. It?s a full price, but it?s not excessive,? Mr Wuffli told the Financial Times.

UBS declined to reveal full profit figures but Mr Wuffli said the operation had a multiple of between 11 and 14 times forward-looking earnings.

Pactual is a private partnership, with 517 employees and main offices in S?o Paulo and Rio de Janeiro. The company publishes no consolidated figures. The relatively modest results on its website cover only its domestic business and understate full profitability. It is the last remaining independent investment bank in Brazil.

The deal with UBS was conducted by its two leading partners, Andr? Esteves and Gilberto Say?o, aged just 37 and 35, respectively. Pactual has taken a leading role in the wave of public share offerings on the S?o Paulo Stock Exchange since 2004, coming second only to Credit Suisse in underwriting business. Senior partners spent much of last year in negotiations with Goldman Sachs over a planned sale of
45 per cent of Pactual.

While Mr Wuffli acknowledged the Goldman Sachs courtship, he said Goldman had been seeking a more modest joint venture and UBS was happy with the deal after extensive due diligence.

The deal is being structured in stages, starting with a $1bn down payment. A further sum of up to $1.6bn will be paid in five years, subject to performance. UBS is also creating a retention pool of up to $500m in its own shares for Pactual and UBS staff, with the amount payable five years after closing.

The deal continues UBS?s string of acquisitions of various sizes to reinforce strengths or plug gaps. Despite rapid growth, the group has recognised a need to expand the emerging markets side of its investment bank, reflected in recent acquisitions in Russia and China.and now Brazil, leaving India the last remaining serious absence.

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