In terms of size and significance, Citigroup’s $12.82 billion purchase of the Mexican banking group Grupo Financiero Banamex-Accival easily outclassed every other merger and acquisition in Latin America last year. The transaction was by far the largest M&A deal in the region and its size exceeded the sum of all other foreign investment in Mexico in 2001. With the purchase of Mexico’s second-largest bank, Citigroup made a decisive and emphatic commitment to Latin America, making it a core contributor to the bank’s emerging markets strategy.
Citigroup’s Mexican bet was predicated on the vision of its chief executive, Sanford Weill, that the country offers outsized profits as it becomes ever more economically integrated with the United States. Over the last eight years, through strong political leadership and exceptionally vigorous trade growth, Mexico has leaned north and convinced US investors like Citigroup that it is Latin America’s standout economy and worthy of investment. Indeed, Mexico’s stock market was among the top 10 performers in the world last year, rising 13%. By contrast, Brazil’s fell 11%.
In May of 2000, Weill and Victor Menezes, Citibank’s emerging markets head, met in New York with Roberto Hernández, chairman of Banamex, and Manuel Medina-Mora, the bank’s chief executive officer. At the time, Banamex was feeling the heat of the recent purchase of Mexican rival Bancomer by the Spanish group, Banco Santander Central Hispano. There was an immediate camaraderie among Citigroup and Banamex executives, and a year later, they came to terms on a merger that would unite one of the largest banks in Mexico with a multinational owner that is the biggest financial institution in the US.
The Banamex purchase also was a milestone that marked the recovery of the Mexican banking industry, which had collapsed in the mid 1990s following the Mexican peso crisis. And by buying Banamex, Citigroup underscored its emerging markets strategy that it has pursued elsewhere in the world and made Latin America a key element of its global market.
The landmark deal – a quasi-reverse takeover in which Citigroup acquired Banamex, which also assumed control of Citibank’s much smaller Mexican operations – creates a bank that has $35.2 billion in assets and $24.1 billion in deposits. Banamex also now can offer Mexican corporate and retail customers traditional banking services as well as pension fund management, insurance and investment banking.
“With the combination of Citigroup and Banamex, we are in a position to offer things that we could not before,” says Manuel Medina-Mora, CEO of the pre- and post-merger Banamex. “Here we have what we consider the best bank in Mexico and the best bank in the US offering products to Mexican corporations that normally do their business with US firms. With Citigroup’s investment and insurance businesses, we can offer a whole array of financial services to corporate customers through a global platform.”
Citigroup bought Banamex in a 50-50 cash-stock deal at a 36% premium to the closing price of Banamex’s shares on the Mexican Stock Exchange on May 11. Controlling and non-controlling shareholders of the Mexican bank all received the same price for their stock. The deal closed in August and Banamex-Accival shareholders now own 2.4% of Citigroup’s common shares. The bank subsequently became the first foreign company to be listed on the Mexican Stock Exchange.
The Citigroup-Banamex union was undoubtedly the standout corporate marriage of the year, but several other transactions deserve recognition. In February, TransCanada Pipelines sold its stakes in 11 companies based in six Latin American countries. The divestments, executed with the help of JP Morgan, involved more than 60 investors, eight acquirors and more than $1 billion in proceeds and assumed debt.
In November, South African Breweries paid $537 million in a series of acquisitions and joint ventures in Central America. The London-based brewer, advised by NM Rothschild, bought 97% of Cervecería Hondureña from the Dole Food Company. SAB then put all of its equity in the Honduran company toward a joint venture with Grupo Agrisal’s El Salvador Beverage Businesses, also a beer and soda company, to form BevCo in which it has a 60% stake. BevCo, gives SAB, which specializes in emerging markets, a platform for further expansion in Central America’s fragmented brewery industry.
Another key bank merger last year occured in Chile, between Banco de Santiago and Banco de Chile, both of which were majority-owned by the conglomerate Quiñenco. Morgan Stanley advised on the transaction. The merged bank, called Banco de Chile, has $12 billion in assets, $800 million in capital and a 20% share of loans and deposits. Shareholders in both banks approved the deal in December. Banco de Edwards stockholders own 34% of the merged bank and Banco de Chile shareholders hold 66%.