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Brazil central bank OKs Itaú-XP deal, but prevents change in control

Brazil's central bank has approved the first part of Itaú Unibanco Holding SA's deal to acquire a stake in brokerage firm XP Investimentos SA although it made Itaú agree to certain commitments aimed at "reinforcing the autonomy and independence of the XP group," the bank said.

In May 2017, Itaú reached a deal to acquire, in an initial tranche, 49.9% of XP Investimentos' total share capital, 30.1% of which are common shares, through a capital increase of 600 million reais and the purchase of XP shares held by current stakeholders for 5.7 billion reais.

This first acquisition will be completed on Aug. 31, Itaú said, noting that the selling shareholders include XP Controle Participações SA, GA Brasil IV Fundo de Investimento em Participações and Dyna III Fundo de Investimento em Participações, among others.

The overall price of 6.3 billion reais for the first acquisition is subject to contractual adjustments through the transaction's effective settlement date.

The agreement between the two companies also includes an additional stake acquisition in 2022 that would allow Itaú to hold up to 62.4% of XP's total share capital, equivalent to 40.0% of the target's common shares, based on a multiple of 19x of XP's earnings. This additional acquisition, which will not alter the control of the XP group, is still subject to the central bank's approval.

Upon the closing of the first acquisition, Itaú and certain selling shareholders will sign an agreement that will reflect the bank's rights as a minority shareholder of XP, including the right to appoint two out of the company's seven board members.

Itaú's call option and XP Controle's put option, which would have transferred XP Investimentos' control to Itaú, were cancelled. Further acquisitions of XP shares planned by the bank were also cancelled. Additionally, Itaú has agreed not to acquire control of XP for the next eight years.

The first acquisition is expected to have an impact of 90 basis points on Itaú's fully loaded Basel III common equity Tier 1 ratio, but is not seen generating a material impact on the bank's recurring profits in the current fiscal year.

Brazilian antitrust regulator Cade approved the 49.9% stake purchase, with some restrictions, earlier in 2018. Cade counselor Cristiane Alkmin Schmidt, who had voted against the deal's approval, later urged Banco Central do Brasil to block the deal over concentration concerns.

As of Aug. 9, US$1 was equivalent to 3.81 Brazilian reais.