Itau Offering Up to $6.8 Billion to Buy Out Redecard’s Minority Investors

Itau Unibanco Holding SA, Brazil’s biggest bank by market value, offered to buy the portion of Redecard SA (RDCD3) it doesn’t already own for as much as 11.8 billion reais ($6.8 billion) to boost earnings from consumers’ growing use of credit and debit cards.

Itau plans to buy 336.4 million common shares of Redecard, the nation’s second-biggest card-payment processor, for as much as 35 reais each, the Sao Paulo-based lender said in a regulatory filing today. The bid, which must be approved by shareholders, was 9 percent higher than yesterday’s closing price of 32.04 reais.

Redecard surged 39 percent in Sao Paulo trading last year as it projected transaction growth of as much as 30 percent and said the industry would double by 2015. The company and larger rival Cielo SA are facing stiffer competition after a Brazil central bank ruling in July 2010 ended the companies’ exclusive rights to process certain transactions.

“This industry has great growth potential in Brazil,” said Joao Pedro Brugger, a portfolio manager at Leme Investimentos in Florianopolis. “The offer shows there could be increased integration between Redecard and Itau.”

Redecard gained 10 percent to 35.40 reais in Sao Paulo today, the biggest gain since Oct. 30, 2008, while Itau advanced almost 1 percent and Cielo rose 4.2 percent. Brazil’s Bovespa index stock index gained 1.1 percent.

Santander, Citigroup

Banco Santander SA started processing credit- and debit- cards payments in 2010, while Citigroup Inc. agreed last year with Elavon to create a joint venture in Brazil.

Itau, which currently owns 50 percent of Redecard, “seems to be moving to an integrated business model,” Marcelo Telles, an analyst at Credit Suisse Group AG, wrote in a report today. Redecard “bears the highest value in the chain.”

Itau said it plans to delist Redecard after acquiring the outstanding shares. Redecard and its shareholders, including Itau, raised 4.07 billion reais in its initial public offering in July 2007.

Itau Chief Executive Officer Roberto Setubal said today he expects the transaction to be concluded within 90 days to 120 days. “The buyout gives more agility in product offering,” he said.

Redecard said Feb. 1 its fourth-quarter net income rose 31 percent to 456.9 million reais, surpassing analysts’ estimates, as it cut jobs.

Headcount Reductions

The buyout offer comes after Redecard named Claudio Yamaguti its chief executive officer in April, replacing Roberto Medeiros. Yamaguti reduced the workforce to 1,054 people at the end of December from 1,455 a year earlier.

Itau posted adjusted net income of 3.75 billion reais in the fourth quarter after job reductions.

“It gives more leverage to Itau when negotiating with clients with combined business,” Gustavo Schroden, analysts at Espirito Santos Investment Bank in Sao Paulo said in a telephone interview.

To contact the reporter on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: Adriana Arai at aarai1@bloomberg.net

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