Itau Unibanco's Merger Deal Faces Hurdle - Analyst Blog

The recent merger deal between Brazilian bank Itau Unibanco Holding SA ITUB and Chile-based bank CorpBanca BCA seems to be in trouble as a minority stakeholder, Cartica Capital, is seeking an injunction against the same. The news was confirmed by a report in Financial Times on Tuesday.

The deal was announced in January this year and is subject to regulatory as well as shareholder approval. As part of the merger deal, CorpBanca's shareholders will receive only shares of the merged unit, to be known as “Itau CorpBanca.”

However, it was alleged that Corp Group, the controlling shareholder of CorpBanca, had manipulated the terms and conditions of the deal to seek greater benefits from Itau Unibanco. The unequal treatment toward minority shareholders prompted Cartica Capital to file a suit in the U.S. District Court that challenged the terms of the deal.

As part of the additional privileges, Corp Group would receive loans worth $1 billion at a discounted rate. Further, Alvaro Saieh, the controller of Corp Group, has been offered millions cash in return of his holdings in company's Columbian unit. He has also been offered a call option, which eliminates downside risk.

Though Itau Unibanco was not directly charged by Cartica, the latter mentioned in a statement that the merger does not guarantee benefits for all shareholders of CorpBanca. However, Itau Unibanco emphasized that equal consideration was offered to each of the shareholders.

Itau Unibanco further stated that the shareholders would be given rights comprising call options and loans. Further, all the shareholders of the Columbian unit would be compensated and Corp Group would be given no exclusive cash benefit.

Following this statement, there is a possibility that Cartica's suit might get rejected. Though this might lead to an increase in cost for Itau Unibanco, the maturity of the deal will bring prospects for the acquirer.

The economic scenario in Brazil remains sluggish, due to which domestic banks are eyeing opportunities outside the country. With this deal, Itau Unibanco could expand in the comparatively better economies of Chile and Columbia.

At present, Itau Unibanco has a Zacks Rank #4 (Sell). Some better-ranked foreign banks include Banco Macro S.A. BMA and Bankinter, S.A. (BKNIY). Both these stocks sport a Zacks Rank #1 (Strong Buy).