ADRs of the Brazilian bank Itau Unibanco Holding SA (ITUB - Analyst Report) gained 2.6% after it inked a deal to acquire 33.58% controlling interest in Chile-based bank CorpBanca in a stock-plus-cash offer. The deal is expected to close by the end of 2014, subject to approval by shareholders along with regulatory approvals in Brazil, Chile, Colombia, Panama and the United States.
According to the terms of the deal, Itau Unibanco will add cash amounting to $652 million in its Chile unit, Banco Itaú Chile, which will subsequently merge with CorpBanca and its major stakeholder Corp Group. Further, CorpBanca will issue 172 billion shares as part of this deal. Also, Itau Unibanco will control units of both companies in Columbia.
The merged entity, which will be referred to as “Itaú CorpBanca,” has market capitalization worth $59 billion, based on the valuation on Jan 28, 2014. Upon completion, the company’s asset and loan balances will settle at $45 billion and $34 billion, respectively, making it one of the biggest banks in Chile and Colombia. The deal will allow the company to cater to its clients through a huge network base of 217 branches in Chile and 172 branches in Columbia.
The deal is expected to drive pre-tax cost savings of around $100 million per year for a period of three years. The one-time integration cost is projected at around $85 million. In addition to the cost savings, substantial growth in revenues is expected from this merger, benefiting both the companies.
The deal will help enhance Itau Unibanco’s footprint in Chile as it penetrated the market back in 2007 through the acquisition of the operations of BankBoston. Later in 2011, it also acquired HSBC’s premium banking operations. Further, this will aid the company to gain a greater market share in Latin America with its entry into Peru and Central America, apart from its presence in Chile, Columbia, Argentina, Paraguay and Uruguay.
Amid the dismal economic scenario and rising household debt in Brazil, this move comes as a boon for Itau Unibanco, owing to the array of opportunities it can tap in the promising Pacific Coast economies.
Itau Unibanco leapfrogged Spain-based Banco Bilbao Vizcaya Argentaria, S.A. (BBVA - Snapshot Report) .), and The Bank of Nova Scotia (BNS - Snapshot Report) , one of the largest banks of Canada, in this Chilean stake acquisition deal.
Itau Unibanco currently holds a Zacks Rank #4 (Sell).