Banco Santander SA (STD) is on an acquisition spree. Under the latest deal that was announced yesterday, a unit of Santander will purchase a $3.2 billion automobile loan portfolio from Citigroup Inc. (C). The deal is a strategic fit for both the companies.
As per the agreement, Santander’s affiliate in the automotive finance sector − Santander Consumer USA Inc. − will buy the $3.2 billion automobile loan portfolio of CitiFinancial Auto for a purchase price equal to 99% of the value of the gross receivables. The deal is expected to close in the third quarter of 2010 and is subject to regulatory approvals.
Besides this, Santander and Citi have also struck a deal under whereby the former will service a portfolio of roughly $7.2 billion of auto loans that Citi will retain.
The deal is in line with the strategic reengineering efforts at both Santander and Citi. Santander’s home market is experiencing a deep recession and there remain worries over the Spanish sovereign’s debt that resulted in tough financing conditions for the Spanish banks. Diversification, therefore, remains an obvious choice for the company.
To boost its market share in Mexico, Santander has recently announced the buying back of its 24.9% stake in its Mexican arm, Grupo Financiero Santander, from Bank of America Corp. (BAC) for $2.5 billion.
Santander expects the deal to have a positive impact of 1.3% on its earnings per share from the first year itself and a 15% return on investments from the third year. The company was also bidding for 318 branches of the Royal Bank of Scotland Group plc.
For Citi, the sale would reduce assets in Citi Holdings by approximately $3.2 billion. The company aims at de-leveraging Citi Holdings, consisting of assets that are non-core to the company, through a number of steps that include joint ventures, dispositions and asset run-offs.
Citi has already announced the sale of a number of its businesses within Citi Holdings. Veering towards a simplified business model, the company wants to allocate its capital to long-term strategic businesses. The latest agreement is a step towards that goal.
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