Banco Santander Central Hispano SA made it clear that its interest in expanding in the United States is not confined to Sovereign Bancorp Inc. or to retail banking.
The Madrid company, which has about $1 trillion of assets, said Monday that it would buy 90% of the Dallas auto lender Drive Financial Services LP from the Scottish banking company HBOS PLC for about $651 million in cash. The deal may demonstrate that Santander is not going to wait until it has the option of increasing its stake in Sovereign to expand here.
Santander bought 19.8% of the Philadelphia company May 31 and subsequently increased that stake to just under 25% through purchases in the open market. It stopped making further stock purchases as part of its agreement with Sovereign but has an option to buy the rest of the $89 billion-asset company for $40 a share in two years.
Sovereign also has the right of first refusal on deals Santander might make to acquire banking companies and nonbanks valued at less than $300 million "from Maine to North Carolina and [in] certain adjacent states."
But Santander is free to purchase elsewhere in the United States without Sovereign's involvement, and the highly contested deal with Sovereign was not its first here this year. In February, Santander Bancorp, a San Juan, Puerto Rico, company 90% owned by the Madrid holding company, bought the nonprime Puerto Rican consumer finance business of Wells Fargo & Co. for $734.5 million in cash.
Analysts described the three deals Monday as different in scope and strategy and said it is unclear whether they can be combined in a unified strategy for Santander in the United States.
"If there were a grand strategy, they would want to have control over all the pieces," said John Raymond of CreditSights Inc.'s London office.
Mr. Raymond and Mariano Colmenar, a Credit Suisse Group analyst, said it remains unclear whether Santander eventually will buy Sovereign outright. Though Sovereign appears eager to sell itself, Santander executives have been less vocal about their plans, the analysts said.
Santander did not make an executive available for comment Monday.
It is also unclear whether Sovereign and Santander expect any synergies from the deal announced Monday, which Sovereign would not discuss.
"I don't think the transactions" with Sovereign and Drive Financial "are interconnected," Mr. Colmenar said. However, the auto financier would be a "very, very good fit" for Santander, which "is expanding very firmly and very successfully in consumer finance" and could well make more such deals in the United States.
Santander is heavily focused on retail and consumer banking in Europe and Latin America and is one of the largest auto lenders in Europe. It has expanded in the United Kingdom, Germany, and Russia lately, and it was simply a matter of time before it would take a controlling interest in a company on the U.S. mainland, Mr. Colmenar said. "We were expecting them to make a move in the U.S."
Juan Rodriguez Inciarte, the head of consumer finance and the general director of strategic investments at Santander, said in a press release that the deal for the Drive Financial stake is "a qualitative leap" for his company.
"Drive is the niche leader in a business in which Santander has a solid record of success in Europe, which we will aim to repeat in the U.S.," he said. "Drive is exceedingly well positioned for growth and has excellent servicing and asset quality control platforms."
The Dallas lender, founded in 1995, holds a 4% share of the U.S. subprime auto financing market, according to the press release. It operates in 35 states, including Florida, California, and Texas.
Santander would not buy immediately the 10% stake owned by Drive's chief operating officer, Thomas G. Dundon, who would become the auto lender's chief executive, but the Madrid company has an option to buy his stake in 2009 through 2013. The deal is expected to close this year.
Sovereign and Santander have a stand-still agreement until June 2008. When that expires, Santander would have the first right of refusal to buy Sovereign for $40 a share. After 2009, Sovereign could chose another partner.
Jay S. Sidhu, Sovereign's chairman and CEO, told investors Sept. 14 during a conference in New York: "Sovereign has decided going alone is not an option. Partnering with someone is the only option that we pursue in being a national player in the endgame."
He reiterated that his preferred partner is Santander, but he also said that Sovereign is positioned to strike a deal with "someone else" if Santander decides not to buy all of his company. Those words surprised Sovereign investors and analysts, but a Santander spokesman said that the statement was nothing new, and that Mr. Sidhu simply was spelling out what the investment agreement said.
When the deal between his company and Santander was announced in October, Mr. Sidhu said, "After the 100% ownership, Sovereign becomes Santander's sole vehicle for financial services in the United States." That too is part of the agreement.
