(Adds CorpBanca comments in paragraphs 3-6)
SAO PAULO, April 1 U.S. investment firm Cartica Management LLC filed a lawsuit in New York on Tuesday against Chilean bank CorpBanca SA, its controlling shareholder, Álvaro Saieh, and his investment holding company over a plan to merge with Brazil's Itaú Unibanco Holding Financeira SA.
Cartica asked a court in the Southern District of New York to declare the defendants "in violation of anti-fraud provisions and disclosure requirements of the U.S. Securities Exchange Act of 1934, and to enjoin the closing of the Banco Itaú Chile-CorpBanca combination," according to a statement.
Washington, D.C.-based Cartica, which oversees about $2 billion in assets, owns about 3.2 percent of CorpBanca's common shares through separate investment vehicles. In a statement, CorpBanca Chief Executive Officer Fernando Massú said Cartica's criticism of the merger "lacks basis" and will "defend our point of view in the right place."
The fund alleges the deal with Itaú, Latin America's biggest bank by market value, undervalued CorpBanca's shares and gave special benefits to Saieh, a Chilean billionaire, and his company CorpGroup.
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 underlines the difficulties facing the deal. Recent pledges by Massú to disclose more information on the merger did little to appease Cartica.
"This attempt to rob minority shareholders has gone on long enough," Teresa Barger, Cartica's managing director, said in the statement. "We have brought the fraudulent acts of Álvaro Saieh, CorpGroup and CorpBanca before a federal court because they, along with Itaú, have so far failed to take advantage of the opportunity to voluntarily call off this disastrous deal."
According to Massú, Cartica's goal is to prevent a shareholders' meeting on the deal from taking place. The executive also said that the fund's tactics, which include ignoring the jurisdiction of Chilean courts over the deal, hampers the merger and the bank and shareholders as a whole.
CorpBanca shares gained 1.4 percent to close at 6.54 Chilean pesos in Santiago. The shares are up about 7 percent since Jan. 29, when the deal was announced. The preferred shares of Itaú were up 0.8 percent.
CorpBanca representatives did not have any immediate comment. Itaú reiterated that the deal followed the highest standards of corporate governance. Efforts to get a comment from Saieh and CorpGroup were unsuccessful.
According to Berger, the lawsuit also intends to hold CorpBanca directors, including Massú and Chief Financial Officer Eugenio Gigogne, "liable for the harm they have caused and will cause the minority shareholders."
The combined company 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. Itaú is contending with slowing economic growth and rising household debt in Brazil, where it trails state-run lender Banco do Brasil SA.
Itaú CorpBanca, as the venture will be known, will have a market value of $8 billion, $44 billion in assets, a $33 billion loan book, about 10,000 employees and 390 branches, executives said in January.
In its statement, Cartica alleged that Saieh "used fraud to extract a control share premium for his majority stake in CorpBanca," accumulating a number of short- and long-term benefits that came at the expense of minority shareholders.
Saieh began putting parts of CorpGroup up for sale last year to raise cash after his retail holding company SMU, which owns supermarket chain Unimarc, disclosed accounting errors, raising its liabilities and leading to a breach of debt covenants. He also controls Chilean daily newspaper La Tercera.
Late last year, Saieh, a Chilean of Palestinian ancestry, began talks with Itaú to pursue a merger, an outright sale or the creation of a structure allowing him to remain a relevant shareholder in CorpBanca, sources told Reuters in December.
"As part of this fraudulent scheme, Saieh and the other defendants also failed to file any disclosures regarding the sale that are required of major company investors effecting a change in control," the Cartica statement said.
Some of those benefits included proceeds from the sale of his shares in the Colombian unit of CorpBanca, a $950 million loan extended by Itaú and backed by CorpBanca shares, call options that bear no downside risk, and the chance to share in future Itaú Unibanco business opportunities in certain Latin American countries, Cartica added. (Reporting by Guillermo Parra-Bernal; Additional reporting by Felipe Iturrieta in Santiago; Editing by Franklin Paul, Andre Grenon and Bernard Orr)