Itau Unibanco Holding SA, Latin America’s biggest bank by market value, agreed to buy control of Chile’s Corpbanca for at least $2.2 billion in cash and stock. Corpbanca shares fell the most on record, while it’s bonds rose.
Itau will inject $652 million of capital and merge its Chilean and Colombian units with Corpbanca, according to a statement today. Itau will receive 172 billion new shares in Corpbanca — worth $2.2 billion based on yesterday’s closing price — and get a 33.58 percent controlling stake through a shareholder agreement with CorpGroup Banking SA, the holding company of billionaire Alvaro Saieh and his family.
The deal will turn Itau into the fourth-biggest bank in Chile, up from seventh now. Brazilian banks including Itau and Banco do Brasil SA are seeking foreign assets as the nation’s economic growth slows. Brazil will probably grow 2.1 percent in 2014, lagging behind a 4.2 percent rate for Chile and 4.5 percent for Colombia, according to analysts polled by Bloomberg.
“Chile will be Itau’s principal asset in Latin America outside of Brazil,” Itau Latin America Chief Executive Officer Ricardo Villela Marino said on a call with reporters today.
Corpbanca declined 13.7 percent to 6.07 Chilean pesos in Santiago as Itau’s Marino said Chilean law doesn’t require the company to extend the offer to minority shareholders. Itau dropped 1.9 percent to 29.49 reais in Sao Paulo.
“Corpbanca was valued at a premium of only 20 percent to the valuation of Banco Itau Chile,” Banco Bradesco SA analysts including Carlos Firetti wrote in a report to clients today. “We think this valuation is positive, considering that Itaú Chile lacks scale to improve its return alone.”
Itau will appoint Boris Buvinic as chief executive officer of Itau Corpbanca, while CorpGroup will name Alvaro Saieh’s son Jorge Andres Saieh as the bank chairman, according to the statement. Itau and Corpbanca expect to conclude the transaction this year.
The extra yield, or spread, investors demand to buy Corpbanca’s $800 million bonds due 2018 instead of U.S. Treasuries fell 16 basis points to 296 basis points as of 4:07 a.m. in New York. The spread on CorpGroup’s 2023 bonds fell eight basis points to 450 basis points.
Rodolfo Amstalden, an analyst at equity research firm Empiricus Research in Sao Paulo, welcomed Itau’s expansion into faster growing markets such as Chile, Colombia and Peru.
“If you think in terms of Brazil, Itau’s growth will be organic,” said Amstalden in a telephone interview today. Still, the acquisition isn’t significant for Itau when compared with its consolidated earnings, he said.
Corpbanca rallied 21 percent since Nov. 12 through yesterday, when Itau Chief Executive Officer Roberto Setubal said the bank sees the Chilean market as a “priority.” That compares with a decline of 6.8 percent for Itau. Corpbanca had a market value of $4.37 billion, based on yesterday’s closing price.
The agreement also gives Itau access to the Colombian retail market through Banco Corpbanca Colombia and Helm Bank. The merged bank will have 66 percent in Banco Corpbanca Colombia and will offer to buy the remaining stake for $894 million.
CorpGroup also will open a credit line with Itau for $950 million, using Corpbanca shares as collateral. Shares in Corpbanca had hit a three-year low of 4.73 pesos on Aug. 28 amid concern the bank might be hurt by financial distress at retailer SMU SA, which is also owned by Saieh.
The spread on 2020 SMU bonds fell 32 basis points to 12.73 percentage points today.
The new bank will have a market value above $8 billion considering the banks combined equity, Marino said. Itau estimates the transaction will generate cost savings of about $100 million a year not including funding costs, he said.
The transaction is a “very good” outcome for the Chilean financial industry as it creates a bank with a “double digit” market share, said Mark Rosen, head of investment banking for Latin America at Bank of America Merrill Lynch. The Charlotte, North Carolina-based bank was the leading adviser for Corpbanca.
“It’s a significant move for Itau outside Brazil,” Rosen said in a telephone interview today, adding that the deal will benefit CorpGroup, Itau and minority shareholders because of the cost savings it will generate.