Santander Brasil Shares Surge After Spanish Parent Offers Buyout

Apr 29, 2014 10:51 am ET

April 29 (Bloomberg) -- Banco Santander Brasil SA surged as much as 21 percent, the most since the company went public in 2009, after its Spanish parent offered to buy the 25 percent of the bank it doesn’t already own.

Banco Santander SA proposed issuing as many as 665 million shares and spending about 4.7 billion euros ($6.5 billion) in a bid to complete a voluntary buyback of the business at the equivalent of 15.31 reais a share, or 20 percent more than yesterday’s closing price, the Santander-based company said today in a statement.

Faltering growth in Brazil has put pressure on profits from South America as Spain climbs out of a six-year economic slump. Britain now contributes as much to Santander’s earnings as Brazil, at about 20 percent. Shares of the Brazil unit have slumped more than 40 percent in the past 4 1/2 years.

“The market doesn’t believe in our franchise but we do, and that’s why we’re carrying out this transaction,” Javier Marin, chief executive officer of the parent company, said at a news conference at the company’s headquarters near Madrid.

Santander Brasil rose 16 percent to 14.84 reais at 11:40 a.m. in Sao Paulo, after rising as high as 15.37 earlier today. The parent company advanced 1.8 percent to 7.17 euros in Madrid.

Santander Brasil has declined more than 40 percent since its 2009 initial public offering price of 23.5 reais, the worst performer in the MSCI Latin America/Financials Index.

Buying Low

“They sold high and are buying low -- well done,” said Bill Rudman, who helps manage about $400 million of emerging- market stocks, including Santander Brasil shares, at Blackfriars Asset Management in London. “They’ve done better from it than investors, but that’s just the way it goes. Life is tough in Brazil and if you are not one of the top two private banks or one of the state-backed banks, it’s a struggle.”

Rudman said it would be difficult to accept Santander’s offer because his fund has a mandate to invest in emerging- market shares.

The bank will remain listed in Sao Paulo with a free float of less than 25 percent of its total shares, Jesus Zabalza, CEO of the unit, told reporters on a conference call.

The fact that Santander is offering to buy out minority shareholders in Brazil doesn’t mean it will do so in other markets where it has listed banks, Marin said. Santander also has listed companies in markets including Chile and Mexico, and Marin said the bank will press ahead with plans to sell shares in its U.K. unit in the “medium term.”

Shareholder Participation

The Brazil offer should attract high participation from minority shareholders because the company has been underperforming other Brazilian banks, including Banco Bradesco SA, Itau Unibanco Holding SA and Banco do Brasil SA, Joao Pedro Brugger, who helps oversee 500 million reais ($225 million) as a portfolio manager at Leme Investimentos, said in a telephone interview from Florianopolis, Brazil.

Santander, Spain’s biggest bank, also said today that first-quarter profit rose 8 percent to 1.3 billion euros from a year earlier. That was more than the 1.23 billion-euro average estimate in a Bloomberg survey of 11 analysts. Profit from Brazil fell 27 percent to 364 million euros from a year earlier as net interest income declined, the bank said.

“Everybody shares the view that there are some short-term headwinds in Brazil, but we are certainly confident about the long-term prospects, Marin said on a webcast after earnings were released.

Profit from Spain rose 24 percent to 251 million euros from a year earlier on improved net interest income, which climbed 4 percent from the fourth quarter, the bank said. Earnings from the U.K. rose 68 percent to 376 million euros.

‘‘The results look fine and they are doing a good deal in Brazil, so everything adds up for Santander today,’’ Daragh Quinn, an analyst at Nomura International, said in a phone interview.

--With assistance from Francisco Marcelino in Sao Paulo and Julia Leite in New York.