In an active year for Latin American bank sales, it’s no surprise that Banco Santander Central Hispano’s $3.55 billion purchase of Banespa, the former São Paulo state bank, takes our prize for privatization of the year. The sale was a triumph for the Brazilian Central Bank, which sold Banespa for over four times its book value. BSCH bought 30% of Banespa’s shares and a 60% controlling stake in the company and reinforces its position as Latin America’s biggest bank.
In the months leading up to the sale, investors had become weary of repeated delays due to legal challenges by unions and opposition parties. With each postponement, Banespa lost customers and its value declined steadily.
To complicate matters further, Citigroup, FleetBoston, HSBC, and Banco Bilbao Vizcaya all pulled out of the bidding process the week before the auction. Banco Itaú, Brazil’s second-largest private-sector bank, pulled out at the last minute. Yet the central bank was still able to raise $3.55 billion on the sale, well over the $900 million minimum bidding price. BSCH’s bid was 3.5 times larger than the second- and third-placed bids. Brazil’s largest private-sector bank, Banco Bradesco, offered $954.1 million while Brazil’s Unibanco, now the country’s fourth-largest bank, offered $1.08 billion.
Venilton Tadini, managing partner at Banco Fator, the lead advisor to the central bank for the Banespa privatization, was surprised by the outcome of the deal. “We expected all the domestic banks to enter the running, even Itaú. The minimum price was set at R$1.8 billion ($947 million) and we were expecting bids to reach R$3 billion or R$4 billion,” he says. “This was an important transaction for the Brazilian government. It generated with an impressive inflow of dollars, especially at an uncertain time with the crisis in Argentina.”
NM Rothschild Consultoria Financeira advised the Brazilian central bank on the valuation and marketing of Banespa. Roberto Hesketh, president and CEO of Rothschild Brasil, says Banespa was the largest privatization in Latin America in 2000 and the second largest ever in Brazil.
BSCH is offering $49 per 1,000 shares to buy the remaining 67% of equity held by non-core shareholders. This is a fraction of the bank’s offer of $323 per 1,000 shares at the privatization. BSCH offered former Banespa employees $84 per 1,000 shares. Once these operations are concluded, BSCH’s bill for Banespa should total $4.95 billion, or $1,700 per bank customer.
Despite the high price BSCH paid for Banespa, the acquisition consolidates its position as Latin America’s biggest bank with $113 billion in assets. BSCH already owns leading banks in Mexico, Colombia, Peru, Puerto Rico, Chile, and Argentina. It is now Brazil’s third-largest private bank and the largest international bank operating in the country.
Bernardo Parnes, managing director and Brazil country head for Merrill Lynch, which advised BSCH, says Banespa was the last opportunity available for BSCH to significantly increase its market share in Brazil through acquisition. Still, it is understood that Merrill Lynch has agreed to defer its $5 million fee on the transaction.
With Banespa under its belt, BSCH holds 10.6% of Latin America’s banking assets. Prior to the acquisition, BSCH was Brazil’s eighth-largest institution, while Banespa was the country’s seventh-largest. Combined, they become Brazil’s fifth-largest financial institution and third-largest private sector bank.
This was BSCH’s fourth major acquisition in Latin America. In January it paid $1 billion for Brazil’s Banco Meridional, a regional private sector bank. In March, it acquired Patagon.com, an online banking and equity-trading site, for $529 million. In May, BSCH won the auction for Mexico’s Grupo Financiero Serfín, the country eighth-largest bank, with a $1.56 billion bid.
Latin America produced other important privatizations last year. In September, the Mexican government completed a $335.8 million privatization and IPO of Asur, an airport operating group. In previous privatizations, the government sold controlling stakes to strategic investors. Asur’s simultaneous IPO on the New York Stock Exchange and Mexico City bolsa was a groundbreaking strategy for selling a government asset.
“The Asur deal is very innovative. It’s the first time a [Mexican] privatization really attempts to create a public company. Other companies in Mexico are beginning to recognize the value of these corporate structures,” says Gerardo Legoretta, director of corporate finance at UBS Warburg, which advised on the sale.
In Colombia’s first privatization since 1998, the government finally sold Carbones de Colombia (Carbocol) last year after several failed attempts. An international consortium composed of South Africa’s Anglo-American, the UK’s Billiton and Switzerland’s Glencore International paid $383.7 million, assumed $70 million in debt and $20 million in other liabilities. Carbocol owns 50% of the Cerrejón Norte mine, Latin America’s largest open-pit coalmine.
The deal succeeded in spite of wavering investor confidence. Chase and Salomon Smith Barney both advised the Colombian government on the sale.