Itau Unibanco To Acquire Minority Stake In XP Holding

Itau Unibanco S.A., a subsidiary of Itau Unibanco Holding S.A. (NYSE:ITUB) , announced that it has entered into a share purchase agreement with XP Investimentos S.A. (XP Holding), a Brazil-based brokerage firm. With the initial acquisition, Itau Unibanco will be entitled to 49.9% of the total share capital, which would make it a minority shareholder of XP Holding.

In exchange, Itau Unibanco will pay about R$5.7 billion to General Atlantic LLC and Dyna III fund, existing shareholders of XP Holding, for the stake. Further, the acquirer will also add R$600 million as capital. Apart from this, Itau Unibanco has the right to appoint two out of seven members of the Board of Directors of XP Holding.

Per the deal, in 2020, Itau Unibanco would purchase another 12.5% of XP Holding, which will raise its stake to 62.4%. Following that, in 2022, the company will again acquire 12.5% of XP Holding. By that time, Itau Unibanco will have 74.9% of total share capital (49.9% of the voting shares).

Two years later, XP Controle, subsidiary of XP Holding, will have the right to exercise a put option to sell all of its shares to Itau Unibanco. Further, in 2033, the acquiring company will have the right to exercise a call option that will entitle it to purchase all the shares of XP Controle in XP Holding. On the exercise of either option, Itau Unibanco will have the control and the total equity of XP Holding.

The first acquisition is expected to have an impact of 0.8% in Itau Unibanco’s Basel Index. However, no relevant effect of this transaction is anticipated in this fiscal year.

The company’s focus on expanding business in Brazil and internationally is reflected in its recent active involvement in acquisitions. However, elevated expenses and stressed conditions in Brazil keep us apprehensive.

Shares of Itau Unibanco have increased 24.7% in the past six months, outperforming the 13.6% growth for the Zacks Categorized Banks - Foreign industry.

Currently, the company carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space include Bank of N.T. Butterfield & Son LTD (NYSE:NTB) , HDFC Bank Limited (NYSE:HDB) and UBS Group AG (NYSE:UBS) . All these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of N.T. Butterfield & Son’s earnings estimates were revised upward by 3.7% for the current year, in the past 30 days. Also, its share price jumped 20.7%, over the last six months.

HDFC Bank’s current-year earnings estimates were revised 3.6% upward, over the last 60 days. Further, its shares increased 23.3%, in the last six months.

UBS Group witnessed 5% upward earnings estimates revision for the current year in the past 30 days. Moreover, its shares have gained 2.1% in the last six months.

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