According to the terms of the staggered transaction, Itaú acquired a 49% stake (30% of voting shares) of XP for R$5.7 billion ($1.5 billion), plus a R$600 million capital increase. The central bank has allowed the next phase of the deal – to come in 2020 – when Itaú will then buy a further 12.5%, creating a 62.4% stake (40% of voting shares), at 19-times price/earnings.
However, the deal’s next timetabled steps – with Itaú purchasing a further 12.5% in 2022, reaching a 74.9% stake (49.9% of voting shares), as well as options allowing for Itaú’s 100% control, either through a 2024 XP put option or a call for Itaú in 2033 – will not be allowed.
That the central bank has now acted, while the antitrust authority, Cade, approved the whole deal, is also important. Because, compared with other deals, this should not have hit any limit issues – XP is large, but, given Itaú’s size, it is hard to argue the acquisition would be transformative.
So belatedly then, the banking regulator is signalling enough is enough in terms of consolidation of the financial services industry.
While it is too late to do anything about the dominance of the traditional retail market – the top five banks have more than 90% of the country’s bank branch network – Brazil’s digital future is still in play.
This decision by the central bank is a clear message to the country’s growing fintech industry and the incumbent banks that M&A exits that absorb exciting startups back into the consolidated status quo will not be nodded through by a passive regulator.
The decision by XP in 2016 to call off its planned IPO and instead sell out to Itaú disappointed many – not just the equity capital markets bankers who had hoped the deal would spark life into dormant equities markets.
Now, the central bank’s decision to promote plurality should excite people.