Santander offers to buy remaining 10% of Brazilian unit for $2.2 billion

By Andre Romani, Abu Sultan and Jesús Aguado

SAO PAULO/BENGALURU/MADRID, July 30 (Reuters) - Spain's Santander has offered to acquire the remaining around 10% stake it does not already own in its Brazilian unit through a share swap for around €1.9 billion ($2.19 billion), it said on Thursday.

Santander Brasil on Wednesday reported its weakest quarterly profit and profitability since late 2023, missing market expectations as tighter lending spreads and higher provisions for bad loans weighed on earnings.

The euro zone's biggest lender by market value said the offer will be voluntary, does not seek the delisting of Santander Brasil, and is not subject to a minimum acceptance condition.

Santander's share swap implies a 15% premium over Santander Brasil's closing price on Thursday.

OFFER IS 'DISAPPOINTING', JPMORGAN ANALYSTS SAY

Santander increased its stake in its Brazilian unit in 2014 in a deal that could also have included all of the remaining shares. The bank announced the delisting of its Mexican unit in 2023.

JPMorgan said in a note that the offer was "disappointing and below the initial 20% premium offered back in 2014".

While an offer has been expected since the 2014 tender, "we are unsure if the best timing would be right after a very weak earnings print", the broker said, as the credit cycle may get worse in Brazil.

However, it also said the deal could be welcomed by Santander shareholders, especially as Santander believes the subsidiary could be capable of achieving a return on tangible equity — a measure of profitability — of above 20% by 2028.

SPANISH PARENT COULD ISSUE 156 MILLION NEW SHARES

Santander said the deal was expected to increase earnings per share by approximately 0.5% from 2028 and tangible book value per share by approximately 0.6%, while having a neutral impact on capital ratio.

If all minority shares are tendered, the Spanish parent will issue about 156 million new shares, equivalent to about 1.1% of its current share capital.

In a statement, Santander Chair Ana Botin said Brazil offered "significant opportunities for profitable growth".

At 0848 GMT, shares in the parent company Santander were up 1.5% compared to a 0.8% rise in Spain's blue-chip Ibex-35.

Shares in the Brazilian unit, which had an initial public offering in Sao Paulo in 2009, closed down 1.48% on Thursday before the announcement was made.

So far this year they have fallen more than 21% compared to a nearly 10% increase in the Brazilian equities benchmark stock index Bovespa.

($1 = 0.8678 euros)

(Reporting by Andre Romani in Sao Paulo and Abu Sultan in Bengaluru; Editing by Cynthia Osterman and Jan Harvey)