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News > Deals
Citigroup to buy Banacci
May 17, 2001: 2:11 p.m. ET

U.S. financial firm moves into Mexico with proposed $12.5B acquisition
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NEW YORK (CNNfn) - Citigroup, North America's biggest financial services company, agreed Thursday to acquire Banamex-Accival, the No. 2 Mexican bank known as Banacci, for $12.5 billion in cash and stock.

Terms call for Banacci shareholders to receive $6.25 billion cash and 127 million Citigroup (C: down $0.94 to $50.85, Research, Estimates)  shares that, based on the stock's May 11 closing price of $49.26, also are valued at $6.25 billion, the companies said. There is no collar on the deal.

The purchase marks the first takeover of a large Mexican bank by a U.S. financial institution, though many other Mexican banks have merged with firms from other countries.

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The deal, approved by the boards of both firms, still is subject to regulatory approval and is expected to close in the fourth quarter. The purchase is expected to add 5 cents to Citigroup's earnings per share in 2002, Citigroup Chairman Sanford Weill said in a conference call. The combined company expects $200 million in incremental savings over the next few years and anticipates restructuring charges of about $140 million.

Citigroup had been in talks with Banamex for several weeks and is taking a stake in an emerging market with strong potential, Weill said. He noted bank lending, as a percentage of gross domestic product, is 15 percent in Mexico compared with 29 percent in Brazil and 79 percent in the United States. Banamex has diverse operations, ranging from commercial banking to online stock trading.

Ole?

Citigroup and Banamex hope to tap into the growing Hispanic population in the United States, among which Banamex is a popular brand. Banamex, founded in 1884, is Mexico's largest commercial bank by equity and earnings, with more than 1,300 branches and 3,000 ATMs in the country.

"This is a very good deal for Citigroup," analyst George Bicher of Deutsche Banc Alex. Brown said. "This deal doesn't change the world. But it has pretty attractive terms and it solidifies our earnings expectations for Citigroup."

He maintained a strong buy on Citigroup's stock, with a price target of $70 a share. Citigroup shares dropped marginally after the deal was announced, trading at nearly $51.

At $12.5 billion, Citigroup's purchase of Banamex is the largest Latin American deal involving a U.S.-based acquirer, according to Thomson Financial Securities Data. It also represents the maturation of emerging countries like Mexico, Bicher said.

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"This follows a natural progression of the company's strategy and the evolution of developing economies," Bicher said.

Most analysts generally applauded the deal but some raised questions during the call about Bannacci's reserves for delinquent credit and loan payments, but Weill said he is confident Banacci is on top of the situation.

Merrill Lynch analyst Rodrigo Quintanilla said he has been looking for a solid earnings recovery at Bannacci, which has taken steps to better manage its credit card operations.

However, the acquisition likely will not start consolidation in the Latin American market. Citibank has been in Mexico for 72 years and has long made known that it was on the hunt for an acquisition, Deutsche Banc's Bicher said.

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New York-based Citigroup, which owns Citibank, Traveler's insurance and the investment bank Salomon Smith Barney, said it will apply to have its shares listed on the Mexican Stock Exchange, making it the first international company on that exchange. graphic


-- from staff and wire reports





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