Tue Mar 4, 2014 2:54pm EST
(Reuters) – An activist U.S. investor has asked Chilean bank CorpBanca SA COB.SN to reconsider its approval of a merger with Brazil’s Itaú Unibanco Holding SA (ITUB4.SA) and to launch a new auction, alleging CorpBanca had sold its minority investors short while benefiting its key shareholder.
The deal with Itaú, worth about $3.7 billion, undervalued the bank’s shares and gave special benefits to Chilean billionaire Alvaro Saieh and his investment holding company Corp Group, hedge fund Cartica Management told the board of CorpBanca in a letter late on Monday.
Cartica, which manages more than $2 billion and owns 3.2 percent of the Chilean bank, published the letter on its website on Tuesday, confirming an earlier Reuters report.
Santiago-based CorpBanca did not immediately comment.
Efforts to reach Itaú’s press officials were unsuccessful in Brazil, where many businesses were closed through midday Wednesday for the Carnival holiday.
Cartica’s move, a rare instance of investor activism in the region, threatens to upset Latin America’s largest banking merger since 2008 and further underpins the difficulties facing the deal.
CorpBanca executives have previously defended the deal, which was announced at the end of January, saying an association with Itaú would help catapult it into a regional leader.
Itaú was not obliged to launch a tender offer in Chile for CorpBanca because the deal with CorpBanca did not give the former more than 50 percent of the Chilean lender, executives said at the time.
The resulting entity, to be named Itaú CorpBanca, is expected to have a market value of $8 billion, about 10,000 employees and 390 branches. Under the terms of their deal, Itaú would have a 33.58 percent stake in CorpBanca through a shareholder agreement with Corp Group.
Shares of CorpBanca tumbled 13.5 percent on January 29, the day the deal was announced, reflecting disappointment among investors that terms were too favorable to Itaú and Saieh, and there was no buyout offered to its minority shareholders.
The deal gives Itaú an important foothold in retail banking in Chile and provides a way for it to grow in Colombia – South America’s fastest-growing economy last year – where CorpBanca also has operations. In Colombia, both banks had to launch a tender offer to buy out minority shareholders to comply with local securities rules, since the unit will be fully absorbed by the combined entity.
Shares of CorpBanca gained 1.1 percent to 6.58 Chilean pesos in afternoon trading in Santiago. The shares are up 8.4 percent since the end of January.
Saieh, a Chilean of Palestinian ancestry, began putting assets in his Corp Group empire on the block last year to raise cash after his retail holding company SMU, which owns supermarket chain Unimarc, disclosed accounting errors, raising its liabilities and leading it to breach debt covenants. He also controls Chilean daily newspaper La Tercera.
Late last year, Saieh began talks with Itaú to pursue a merger, an outright sale, or creation of a structure allowing him to remain a relevant shareholder in CorpBanca, sources told Reuters in December.
Besides Itaú, Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA.MC) and Canada’s Bank of Nova Scotia (BNS.TO) were also interested in the Chilean bank, sources told Reuters at the time. BBVA, as the Spanish bank is known, came close, but its proposal was not as attractive as Itaú’s, a person with direct knowledge of the deal told Reuters late in January.
Cartica, which focuses on emerging market stocks, sought to persuade Saieh in two previous letters that the main argument to sell the bank should be price, and not the influence he could exert in the entity stemming from a merger.
In its latest letter, Cartica rebuffed an assertion by the bank that the all-stock deal with Itaú gave all shareholders equal treatment, alleging that it believed minority shareholders were disadvantaged “in return for special benefits accruing to” Saieh and Corp Group.
These benefits include a $950 million loan from Itaú to Corp Group and Saieh’s right to name the combined entity’s chairman, according to the letter.
“We urge you to take immediate steps to do what is right for all shareholders and run a full and transparent process to maximize shareholder value,” Cartica’s Senior Managing Director Teresa Barger said in the letter.
Cartica, which was founded in 2008, tries to influence managements and boards by engaging with them behind the scenes. The fund has a portfolio of about 15 to 20 stocks, focusing on companies with market value of less than $5 billion.
The fund’s other investments include Cementos Argos SA CCB.CN (ALSEA.MX) in Colombia, International Container Terminals Services Inc (ICT.PS) in the Philippines, and Alsea SAB de CV (ALSEA.MX) in Mexico.