NEW YORK - Citigroup Inc. agreed to buy Grupo Financiero Banamex-Accival, owner of Mexico's No. 2 bank, for $12.5 billion as the largest financial company expands in Latin America and tries to attract more Hispanics in the U.S.
In the biggest acquisition of a Mexican company, Citigroup will pay $6.25 billion in cash and the rest in stock for the Mexican company, also called Banacci, including its bank, Banco Nacional de Mexico SA, or Banamex.
Based on Banacci's 4.71 billion shares outstanding, Citigroup will pay $2.65, or 24.01 pesos, each, a 38 percent premium over Banacci's close yesterday.
The transaction would put Mexico's three top banks under foreign ownership as the industry extends a recovery from the crash caused by the 1994 peso devaluation. Banamex has said it expects its loan portfolio to grow 9 percent this year. The Mexican peso is the world's best-performing currency, gaining 7 percent against the dollar this year. The economy, though, has slumped as exports to the U.S. slowed.
"Mexico is one of the most important markets in the world," Citigroup Chairman Sanford Weill said in a statement. "Mexico and the U.S. have become increasingly integrated in terms of the flow of goods, services and capital."
Citigroup shares rose as much as 20 cents to $51.99. Banacci jumped 30 percent to 22.75 pesos. The peso soared as much as 1.8 percent to 9.002 per dollar, the strongest since August 1998.
"The price equals foreign direct investment for one year," said Santiago Millan, chief Latin America economist with HSBC Securities. ``The deal dwarfs all other investments'' in Mexico. Foreign direct investment in Mexico totalled $13.1 billion last year, he said.
Banacci, which last year said it would reduce 10 percent of ts workforce, has been under pressure as Spanish banks Banco Bilbao Vizcaya Argentaria SA and Banco Santander Central Hispano SA bought rivals.
The bank, with 336 billion pesos ($37 billion) in assets and about 1,260 branches in Mexico, may give Citigroup a recognizable brand to reach Mexican customers in the U.S., analysts said.
"They may expand the brand name to the U.S. and use the brand to tackle the Hispanic market," said Robert Lacoursiere, Latin American bank analyst at Lehman Brothers Holdings Inc. in New York. ``There are 35 million Hispanic Americans and half of them are Mexican in origin.''
Citigroup is expanding in a country that had the fastest growth in Latin America in recent years. Mexico's gross domestic product grew about 7 percent last year.
With operations in 102 countries, Citigroup had $1.94 billion of revenue in Latin America in 2000, down from $1.97 billion a year earlier. As Treasury Secretary in the Clinton Administration, Robert Rubin, Chairman of Citigroup's executive committee, was a pivotal figure in pushing through a 1995 bailout for the country after the peso devaluation.
Roberto Hernandez, chairman of Banamex, and Alfredo Harp Helu, chairman of the Banacci group, will join Citigroup's board. The two led an investment group that bought Banamex from the Mexican government in 1991 for $3.2 billion.
The purchase was approved by both companies' boards, and is expected to be completed in the fourth quarter.