Advance America Surges on Mexican Billionaire’s $655 Million Takeover Bid
Advance America Cash Advance Centers Inc. (AEA) jumped the most in more than seven years after Grupo Elektra SAB (ELEKTRA*) agreed to acquire the payday lender for $655 million, stretching the low-income loans empire of Mexican billionaire Ricardo Salinas into the U.S.
Elektra, the retail and banking company 70 percent owned by Salinas, will pay $10.50 a share for Advance America, the Mexico City-based company said yesterday in a statement. That’s a 33 percent premium to yesterday’s closing stock price. Including debt, the transaction is valued at $780 million, Elektra said.
Salinas, 56, seeks to provide financial services to “the bottom of the pyramid” in the U.S., targeting households with less than $25,000 in annual income, he said in a November interview. In Latin America, Elektra offers loans of an average size of $400, a business that has helped make Salinas Mexico’s fourth-richest man, with a net worth of $8.2 billion, according to Forbes magazine.
“It’s an opportunity for us to have a footprint in a market that is expanding,” Bruno Rangel, executive director of investor relations for Elektra, said yesterday in a phone interview. The acquisition, expected to close in the first half of this year, will boost sales and profits, he said.
Elektra operates in eight Latin American countries. Advance America has 2,600 locations in 29 U.S. states, the U.K. and Canada, it said. Elektra will pay for the transaction with about $300 million in cash and the rest in debt, some of it yet to be issued, Rangel said.
Interest Rates
Advance America climbed 32 percent to $10.44 at the close in New York. The Spartanburg, South Carolina-based company has 45 days to solicit better bids from other parties. The gain was the most since Dec. 16, 2004. Elektra rose 2 percent to 1,159.05 pesos in Mexico City.
The acquisition will once again put Salinas under the scrutiny of U.S. regulators. Payday lending is a focus for the newly created U.S. Consumer Financial Protection Bureau.
In Latin America, Elektra’s Banco Azteca unit charges interest rates high enough that customers in some cases end up paying double the amount of the original loan over its full term, Salinas said in November.
That’s necessary to cover the costs of offering the loans, since the bank’s more than 8,000 loan officers have to determine credit quality and collect interest payments, sometimes following up on delinquent clients with personal visits, he said.
Loan Deals
The billionaire, who also controls broadcaster TV Azteca SAB and mobile-phone carrier Grupo Iusacell SA, agreed in September 2006 to pay a fine to settle charges by the Securities and Exchange Commission that he reaped improper profits from undisclosed loan deals.
Salinas didn’t admit or deny the allegations when he agreed to the settlement, according to the SEC. He delisted his companies from U.S. trading after the SEC’s suit.
Stephens Inc. was Elektra’s financial adviser, and Paul Weiss Rifkind Wharton & Garrison LLP was its legal counsel. Advance America got financial advice from Wells Fargo & Co. and legal counsel from K&L Gates LLP.
To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net
To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net
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