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Santander Offers $6.5 Billion to Buy the Restof Its Brazil Unit

By DAN HORCH

April 29, 2014, 1:05 pm

SÃO PAULO, Brazil — Banco Santander announced on Tuesday a

deal to acquire the 25 percent of its Brazilian unit, Santander Brasil,

that it does not already own for 4.69 billion euros, or $6.52 billion.

As part of the deal, Santander is offering shares in the parent

company in exchange for shares in the Brazilian unit.

The price offered for Santander Brasil is 15.31 reais, or $6.92, per

unit, a 20 percent premium over Monday’s closing price.

If all of Santander Brasil’s shareholders accept the offer, Santander

would issue 665 million shares in the parent company, the equivalent of

5.8 percent of its current float. The new shares will trade on the São

Paulo stock exchange as Brazilian depositary receipts. Owners of

American depositary receipts in Santander Brasil would receive A.D.R.s

in Santander Spain.

The offer is voluntary, so Santander Brasil shareholders can keep

their shares, which will continue to trade in São Paulo. But Andre Riva

Gargiulo, senior banking analyst for Grupo Bursátil Mexicano in Brazil,

said shareholders had little choice but to accept the offer.

“Even though the shares will continue to trade, they will have very

little liquidity and will now be listed in a lower corporate governance

tier,” he said.

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Although Mr. Gargiulo termed the offer “unfriendly,” he said the

price Santander Spain was offering was in line with his estimate for the

shares’ potential upside.

Shares of Santander Brasil were up about 16.6 percent Tuesday in

São Paulo to 14.91 reais, indicating market confidence that the deal will

close.

Santander held an I.P.O. of its Brazilian subsidiary in 2009, when

Brazil’s markets were booming. It raised $8.05 billion in the largest

I.P.O. in Brazil’s history.

Eduardo Nishio, financial sector analyst for the São Paulo

investment bank Brasil Plural, noted that Santander Brasil’s share

performance since has been “brutal” for investors.

At the I.P.O., Santander Brasil listed its shares at 23.5 reais apiece.

Had investors at the time simply put those 23.5 reais in short-term

Brazilian government treasuries, they would now have 36 reais, or

nearly 2.4 times the current share price.

“It is clearly a good deal for Santander Spain, which is swapping its

own shares, which have done relatively well in recent years, for shares

which have done very poorly,” Mr. Nishio said

Mr. Nishio said Santander Brasil’s performance since its I.P.O. had

been “disappointing,” with growth and profits lower than its main

competitors, while its Spanish parent often used its Brazilian resources

to strengthen its own capital position.

In a research report Tuesday morning, J.P. Morgan called the offer

“reasonable” because it was well above what the firm estimated to be

Santander Brasil’s fair value, 14 reais a share.

J.P. Morgan’s analysts added that they did not expect Santander

Spain to make similar offers for its other publicly traded Latin

American subsidiaries, Santander Chile and Santander Mexico.

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