The largest bank of Spain, Banco Santander, S.A. (SAN), has offered to acquire the remaining 25% stake in its Brazilian subsidiary, Banco Santander (Brasil) S.A. (BSBR) from minority shareholders. The news led the ADRs of Santander Brasil to rise nearly 14% on Tuesday and close at $6.58.
If all the minority shareholders accept the offer, the deal will be worth €4.7 billion ($6.5 billion) with Banco Santander issuing roughly 665 million shares. The shareholders of Santander Brasil will get 0.70 shares of Banco Santander for every Brazilian Depositary Receipts (BDRs) or ADRs. This represents 20% premium to Santander Brasil’s closing price on Apr 28.
Additionally, the stock of Santander Brasil will continue to trade on the Sao Paulo exchange as well as on New York Stock Exchange. Further, Banco Santander shares will trade on the Sao Paulo stock exchange through BDRs.
Notably, the offer requires relevant regulatory authorizations and approval of Banco Santander’s shareholders. The deal will expectedly be complete by October. Further, UBS AG (UBS) and The Goldman Sachs Group Inc. (GS) are acting as the financial advisors.
The offer to buy the remaining stake reflects Banco Santander’s confidence in the long-term growth prospects of its Brazilian subsidiary. Though Brazil faces near-term headwinds, the company garnered nearly 20% of its total profit was from the country in the first quarter.
Moreover, the deal will have a positive impact on Banco Santander’s earnings per share, with 1.3% rise in earnings in 2015 and 1.1% increase in 2016. Further, the offer will have an almost neutral impact on the company’s core capital.
We believe that given the slow recovery of the Spanish economy, Banco Santander is trying to capitalize on the growth prospects in Brazil. Though Santander Brasil is not doing well at present, its performance will likely improve going forward.
Currently, Banco Santander carries a Zacks Rank #2 (Buy).