Santander offers to buy back the 25% of Santander Brasil they don't own

Communicate: EN

In the press: (ES), (reuters)

To be paid with up to 665mi new Santander shares!
Will increase group earnings in 2015 by €500mi

The no.1 question about the deal in Brazil is : Why issue new shares?

 Is it because:

a) SAN doesn't have the cash to pay for it?

b) SAN has cash but keeps it for better use elsewhere? Where?

c) Future earnings from the additional 25% in Brazilwill offset/ compensate the negative effect of share dilution for existing shareholders?

d) Something else?

Personal opinion below

(a) Capital is currently king, and till stress tests completed, capital untouched (only exception: cortes ingles)

(b) That is the 1bi question, I stay convinced that BIS3 and banking union will bring M&A. The current available operations are done by clever sellers, before the rush

(c) yes, from day one, the lower minority interests (€500mi) will increase the group EPS, even after dilution (details are in the presentation)

(d) at the basis, this is an opportunistic operation: BSBR is so much under valuated, that this €4.7bi operation is capital neutral, EPS positive despite the 20% premium. A mockery of the anglo-saxon financial world. The same move was done in Mexico: in 2010 SAN bought 25% of BSMX from BAC at a discount. Then in 2012, they IPOed 25% of BSMX with a big profit.

Santander announces an offer to acquire 25% of its Brazilian subsidiary

• The transaction would be paid for with up to approximately 665 million shares of Banco Santander, equivalent to EUR 4,686 million.

• The offer reflects Santander’s confidence in its Brazilian subsidiary and in its long-term growth potential.

• There is no minimum tender condition. Acceptance is voluntary.

• The offer is attractive to Santander Brasil shareholders, who will receive a 20%  premium.

• The offer will appeal to Santander’s shareholders given that it would increase earnings per share as from the first year.

• Santander Brasil would remain listed on the Sao Paulo stock exchange. Santander maintains its policy of operating through subsidiaries independent in terms of capital and liquidity and, if possible, listed.

• Banco Santander’s shares would be listed on the Sao Paulo stock exchange.

Santander Brasil is also moving from BOVESPA segment level 2 to "Traditional". Level 2 requires at least 25% free float.

Here are the requirements for each Bovespa segments (PT)