By Guillermo Parra-Bernal and Rosalba O'Brien
SAO PAULO/SANTIAGO Jan 29 (Reuters) - Brazilian bank Itaú Unibanco Holding SA said it would acquire control of leading Chilean bank CorpBanca SA, a deal worth an estimated $3.7 billion that would help it expand beyond its stagnant home turf into more dynamic markets.
The agreement, announced Wednesday, would not only give Itaú an important foothold in retail banking in Chile but also provide a way to grow in Colombia, South America's fastest-growing economy last year.
The agreement calls for Itaú to pump $652 million into its Chilean unit and then combine it with CorpBanca. The new entity, which will be named Itaú CorpBanca, will be 50.5 percent-owned by the São Paulo-based lender and also will take over the Colombian units of both banks.
Itaú CorpBanca will have a market value of $8 billion, $44 billion in assets, a $33 billion loan book, about 10,000 employees and 390 branches.
"This is a stepping stone towards business opportunities in Chile, Colombia, Peru, Central America," Ricardo Marino, Itaú's head of Latin America businesses, said on a conference call.
For years Chief Executive Officer Roberto Setubal tried to buy regional banks but backed off due to high valuations. Itaú, Latin America's largest bank by market value, began operations in Chile with the purchase of Fleet Boston Corp's local unit in 2006 and bought HSBC Holdings Plc's operations in 2011.
Itaú is contending with slowing economic growth and rising household debt in Brazil, where it trails state-run lender Banco do Brasil SA.
Trying to mitigate the impact of Brazil's challenges, Setubal is reducing loan disbursements in some segments, ramping up Itaú's presence in fee-earning businesses and looking at acquisition opportunities elsewhere in Latin America.
CorpBanca said on a conference call that it did not foresee any regulatory issues and expected approval by the end of 2014.
Itaú "becomes a player in two relevant Latin American banking markets ... without straining capital or doing a dilutive and expensive transaction," said JPMorgan Securities analyst Saúl Martínez.
Given the assets and other indicators, this is set to be the biggest transaction in Chile's financial industry and the largest Latin American banking merger since the combination that created Itaú Unibanco in 2008, according to Thomson Reuters data.
Shares of Itaú shed 1.9 percent to 29.53 reais. CorpBanca plunged 13.5 percent to 6.080 Chilean pesos, reflecting disappointment among investors that terms were too favorable to Itaú and there was no buyout offering to its minority shareholders, traders said.
TRUMPING BBVA, SCOTIABANK
Santiago-based CorpBanca is controlled by Alvaro Saieh, a Chilean billionaire of Palestinian ancestry. Through his Corp Group empire, he controls retail unit SMU, which owns supermarket chain Unimarc. He also owns Chilean daily newspaper La Tercera.
Apart from Itaú, Spain's Banco Bilbao Vizcaya Argentaria SA and Canada's Bank of Nova Scotia were also interested in the Chilean bank, sources told Reuters in December. 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 on Wednesday.
Besides the capital injection into Itaú's Chile unit, Itaú will buy a 33.58 percent stake in CorpBanca through a shareholder agreement with majority shareholder Corp Group. Such a stake could be worth about $2.2 billion at CorpBanca's Tuesday closing price, according to Thomson Reuters' calculations.
Marino, a member of one of the families that control Itaú, declined to give the overall value of the deal, but factoring in other parts of the acquisition suggests it could reach about $3.7 billion.
The combination allows Itaú to access Colombia's red-hot retail banking market, which is dominated by a small number of local companies. Itaú CorpBanca will own about 75 percent of CorpBanca's units in Colombia - Banco Corpbanca Colombia SA and Helm Bank Corp.
The new bank will buy out minority shareholders in CorpBanca Colombia for $892 million and then absorb Itaú's Colombian wholesale banking unit, Itaú BBA Colombia, at book value.
In August, SMU disclosed accounting errors in a review of first-quarter earnings, raising its liabilities and leading it to breach debt covenants. Fears of contagion pushed CorpBanca shares to an all-time low at the time, although they have since largely recovered.
In November, Saieh injected $300 million into SMU and 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.
Alongside with the transaction, Itaú extended Saieh's Corp Group a $950 million loan backed by CorpBanca shares, Marino said.
Boris Buvinic, currently CEO of Itaú's Chilean unit, will head Itaú CorpBanca, and Jorge Andrés Saieh - Alvaro Saieh's son - will become its chairman.