UPDATE 3-Santander Consumer seeks $8.4 bln valuation in IPO

Thu Jan 9, 2014 11:15am EST

* Santander Consumer to offer 65.2 mln shares at between $22-$24/shr

* Private equity funds to cut stake to about 10 pct from 25 pct

* IPO will raise $1.56 bln at top end of range

By Tanya Agrawal

Jan 9 (Reuters) - Santander Consumer USA Holdings Inc , the U.S. consumer-finance arm of Spain's Banco Santander SA, is seeking a valuation of up to $8.4 billion in an initial public offering as its private equity stakeholders cash out.

The IPO's performance will be closely watched ahead of widely expected offerings from other financial services companies this year.

IPO activity surged last year as low interest rates and a surging stock market enticed investors. Companies raised $159.7 billion from IPOs globally, a 37 percent increase on 2012, and bankers expect 2014 to carry on where 2013 left off.

"The Santander deal is an indication of a strong IPO market and risk appetite as we kick of the U.S. IPO season," said Josef Schuster, founder of IPOX Schuster, a Chicago-based IPO research and investment house.

Ally Financial Inc, majority owned by the U.S. government, is hoping to go public this year while General Electric Co plans to spin off of its credit card unit.

Santander Consumer, which focuses on auto loans, said it expected the IPO to raise up to $1.56 billion, based on the sale of 65.2 million shares priced at between $22 and $24 each.

Shareholders including Banco Santander will sell all of the shares being offered. Santander Consumer will not receive any of the proceeds, Santander Consumer said in a filing with the U.S. Securities and Exchange Commission on Thursday. ()

Dallas-based Santander Consumer is 65-percent owned by its Spanish parent. An investment vehicle owned by private equity firms Centerbridge Partners, Kohlberg Kravis Roberts & Co and Warburg Pincus owns about 25 percent.

The offering will reduce the fund's holding to about 10 percent. The fund, which acquired the stake for $1 billion in 2011, is offering about 80 percent of the shares in the offering, while Banco Santander will sell the rest.

Santander Consumer Chief Executive Thomas Dundon owns 10 percent of the company and will retain his stake.

The lender entered into a 10-year agreement with Chrysler Group LLC in 2013 to replace Ally Financial as the preferred originator of loans for Chrysler vehicles.

U.S. auto industry sales are expected to grow by 1 million vehicles to 15.5 million this year, with manufacturers expecting some of their highest sales since 2006.

Santander Consumer, which offers loans through 14,000 car dealers across the United States, has about $25.6 billion of loans outstanding. As of Sept. 30, about $850 billion of auto loans were outstanding in the United States.

The company has been profitable for the past 10 years, posting net income of about $582 million for the nine months ended Sept. 30.

Banco Santander, Spain's largest lender, has been selling assets as it weathers a deep recession in its home country and bumps up its capital ahead of stricter new international rules.

Santander is also expected to float its UK business in 2014 or 2015.

Santander Consumer will list on the New York Stock Exchange under the symbol "SC". Citigroup and J.P. Morgan are the lead underwriters for the offering.

Banco Santander's shares were down 1.3 percent at 6.70 euros in Madrid at 1613 GMT.

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