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Will Itau Unibanco Get Conditional Nod for XP Holding Deal?

Zacks Equity Research

Brazil’s antitrust watchdog has been suggested to give conditional approval to Itau Unibanco S.A., a subsidiary of Itau Unibanco Holding S.A. ITUB for its share purchase agreement with XP Investimentos, S.A. (XP Holding), a Brazil-based brokerage firm. This news was reported by Reuters.

Per a statement issued on Wednesday, the watchdog has been suggested by the superintendent of Cade, a competition regulator in Brazil, to give consent to the deal. However, the condition that remains is that both companies will have to abide by the terms of the deal that were decided on earlier.

In October, Cade’s superintendent had termed the deal as ‘complex’ on grounds of competition and demanded to conduct additional scrutiny to analyze how customers are likely to profit from the deal.

Itau Unibanco had announced the deal in May 2017. As per the terms of the agreement, the company would be entitled to 49.9% of the total share capital as a part of the initial acquisition, which would make it a minority shareholder of XP Holding.

In exchange, Itau Unibanco will pay about R$5.7 billion to the General Atlantic LLC and Dyna III fund, existing of shareholders of XP Holding, for the stake. Further, the acquirer will also add R$600 million as capital. Apart from this, Itau Unibanco had the right to appoint two out of seven members of the board of directors of XP Holding.

Itau Unibanco’s focus on expanding business in Brazil and internationally is reflected from its inorganic growth strategy. However, elevated expenses and stressed conditions in Brazil make us apprehensive.

Shares of Itau Unibanco have rallied 16.7% in the past six months, outperforming the 9.4% growth for the industry.


Currently, Itau Unibanco carries a Zacks Rank #3 (Hold).  

Some better-ranked stocks in the same space are KB Financial Group KB, Macro Bank BMA and ING Group N.V. ING. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KB Financial witnessed 3.6% upward earnings estimate revision for the current year in the past 30 days. Moreover, its shares have gained 17.3% in the last six months.

Macro Bank’s earnings estimates were revised 16.2% upward for the current year, in the past 30 days. Also, its share price jumped 29.5%, over the last six months.

ING Group’s current-year earnings estimates were revised upward by one cent per share, over the last 30 days. Further, its shares increased 5.9%, in the last six months.

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