* Santander says has faith in Brazil long-term outlook
* CEO rules out strategy change with other listed units
* Sees offering of UK unit taking place in 'mid-term'
* Europe earnings rise as first-quarter profit up 8 pct
(Adds details of banks advising on deal)
By Sarah White, Jesús Aguado and Guillermo Parra-Bernal
MADRID/SAO PAULO, April 29 Banco Santander SA
launched a 4.7 billion euro ($6.5 billion) offer on
Tuesday for the 25 percent of its Brazilian unit it does not
already own, giving investors a chance to gain exposure to a
budding recovery of the euro zone's largest bank.
Under the proposed deal, minority investors in Banco
Santander Brasil SA would receive up to 665 million
shares of the Madrid-based lender in a voluntary swap at the
equivalent of 15.31 reais a share. That represents a 20 percent
premium to Santander Brasil's closing price on Monday.
Santander, which is emerging from Europe's worst economic
crisis in decades while still facing a weak Brazilian economy,
hopes the buyout will help cut costs, boost returns and lure
clients to Santander Brasil. Investors are undervaluing the
potential of Santander Brasil, executives said.
"It's a take-it-or-leave-it offer to gain exposure to
Santander's better momentum in Europe as we all recognise that
much heavy lifting has to be done in Brazil," said Mohammed
Mourabet, who oversees $900 million in assets for Victoire
Brasil Investimentos in São Paulo.
Santander Brasil shares soared 21 percent on Tuesday, their
biggest intraday gain since the lender went public in October
2009, underscoring the potential success of the deal. The
buyout, announced the same day Santander reported an 8 percent
rise in first-quarter profit, is an exception to its strategy of
listing foreign units whenever possible to raise cash.
"The offer price seems reasonable given that it is well
above what we consider to be Santander Brasil's stand-alone fair
value," said Saúl Martínez, a senior banking industry analyst
with JPMorgan Securities in New York.
Santander Brasil shares have lost nearly half their value
since the IPO because the bank failed to deploy capital in
profitable activities, outperform competitors and gain scale.
"We can do better, and this is a first step to begin
charting a new course," Jesús Zabalza, chief executive of
Santander Brasil, told investors on a call.
The buyout also reflects Santander's confidence in its
finances ahead of Europe's toughest banking stress tests yet.
The plan would help group profits grow 7 percent in 2015 and
in 2016, equivalent to a boost of 560 million euros in 2016.
Goldman Sachs Group Inc and UBS AG are
advising Santander. Santander shares, up more than 13 percent
this year, closed 1.5 percent higher at 7.154 euros in Madrid.
Most analysts expect the deal, which executives hope to
conclude by October, to succeed.
Faltering growth in Brazil is weighing on profitability at
Santander's Latin America division as Spain slowly emerges from
one of its worst economic crisis ever. In the first quarter,
Europe provided just over half of Santander's net income, which
rose to 1.3 billion euros. Profit in continental Europe rose 64
percent quarter on quarter and 53 percent on the year.
Its UK unit, where revenue in pounds rose 13 percent from
the first quarter of 2013 on a sharp rise in margins and an
improving economy, was now on par with Brazil in providing a
fifth of total profits, Santander said.
Santander CEO Javier Marin said in January that a
long-expected public offering of its UK unit would not take
place in 2014, but occur in the "mid-term."
In Brazil, Santander's profit dropped 27 percent from a year
ago, while it rose 20.9 percent from the fourth quarter of 2013,
taking into account currency fluctuations.
Profits at the parent company missed forecasts slightly.
Non-performing loans in Spain and Brazil edged up slightly at
the end of March from end December, even if at a group level the
ratio dipped to 5.52 percent from 6.61 percent.
A buyout of minority shareholders of Santander's listed
units in Mexico and Chile looks "unlikely at this point, simply
because doing so doesn't appear to make the same kind of
financial sense as it does in Brazil," JPMorgan's Martínez said.
($1 = 2.24 Brazilian reais)
(Additional reporting by Tomas Cobos and Steve Slater in
London, and Aluísio Alves in São Paulo; Editing by Julien Toyer,
Sophie Walker, John Stonestreet; Chizu Nomiyama and Steve