BANCO SANTANDER, S.A

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Banco Santander to Take Over Mexican Subsidiary with EUR2.6 Billion Offer -- 2nd Update

04/12/2019 | 05:57am


--Banco Santander is looking to acquire roughly 25% of Santander Mexico's share capital



--The EUR2.56 billion all-share offer is expected to be settled in the second half of the year



--Santander Mexico shareholders who accept the offer would receive Santander Group dividends from October




By Pietro Lombardi and Anthony Shevlin



Spain's Banco Santander intends to make a 2.56 billion-euro ($2.88 billion) all-stock offer for all the shares it doesn't already hold in its Mexico subsidiary, as part of the company's overall strategy to deploy more capital in Latin America.



The Spanish bank said Friday that the offer for Banco Santander SA Institucion de Banca Multiple Grupo Financiero Santander Mexico (BSMX.MX) would be for up to approximately 25% of the subsidiary's share capital.



Santander expects the deal will be neutral on earnings per share, have a return on investment of around 14.5% and positively contribute to the group's common equity Tier 1 ratio--a common measure of banks' resiliency.



"We believe in Mexico, in the potential of its financial sector and in Santander Mexico which is one of the leading banks in the country today," Executive Chairman Ana Botin said at the bank's annual general meeting.



Shareholders who accept the offer at the expected consideration would receive 0.337 newly issued shares of Banco Santander for every share of Santander Mexico, as well as 1.685 American Depository Shares of Banco Santander for every ADS of Santander Mexico.



The exchange ratio implies a 14% premium based on the closing price of both banks' shares on April 11, or 22% based on the past month's volume weighted average price, the bank said.



"The offer will be voluntary and, therefore, minority shareholders of Santander Mexico may choose whether or not to participate in the transaction, which will not be subject to a minimum acceptance level," the bank said.



If all shares held by minority shareholders in Santander Mexico are tendered in the offer, the Spanish bank would have to issue around 572 million shares at the currently expected consideration, which it says represents 3.5% of its current share capital.



"This transaction meets our strategic and financial criteria, offers an attractive return on invested capital and allows us to increase both net profit and organic capital generation," Ms. Botin said.



Mexico contributed roughly 8% to the Spanish bank's underlying profit last year, the fifth largest contributor among the bank's core markets.



The exchange offer is expected to be launched and settled in the second half of the year.



Santander doesn't intend to seek to delist Santander Mexico from either the Mexican or New York stock exchanges, and the shareholders accepting the offer will receive Santander dividends from October 2019, the Spanish bank said.



"Mexico is attractive but [the] market may question whether deal rationale was more capital driven given company's guide for neutral EPS and 'slightly positive' CET1 impact at group level," U.S. bank Jefferies said.





Write to Pietro Lombardi at pietro.lombardi@dowjones.com and Anthony Shevlin at anthony.shevlin@dowjones.com





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