It’s Monday, we’re all still thinking more in the past weekend than in the starting week… so what did our Brazilian friends think of doing? A nice deal between their largest private bank by market cap, Itau Unibanco, and one of their biggest car and homes insurers, Porto Seguro.
It was announced this Monday that Itau Unibanco Holding S.A. (ITUB3 BZ) and Porto Seguro (PSSA3 BZ) are merging their residence and automobile insurance operations. So what are the mechanics of the deal? Itau Unibanco will first transfer the assets and liabilities related to its current portfolio of homeowner and autoinsurance to a new entity that will be named Itau Univanco Seguros de Automovel e Residencia S.A. (aka Itau Auto and Home Insurance, that’s for the non-Latin folks). This company, with a shareholders’ equity value of 950 MM reais (Brazilian currency), will be transferred to Puerto Seguro. Puerto Seguro will issue shares representing 30% of its new capital stock, to be delivered to the shareholders of Itau. Both Porto Seguro and Itau will then create a new company, called Porto Seguro Itau Unibanco Participacoes), which will own 70% of Porto Seguro. The remaining 30% of Porto Seguro will be traded publicly (the company is, and will continue to be, listed in the Sao Paulo stock exchange). The holding company, which will control Porto Seguro, will be owned 57% by Porto Seguro’s shareholders and 43% by Itau. Ouch…. what a mess right? But here’s the bottom-line: Porto Seguro will be owned 70% by a new holding company, in which Porto Seguro’s shareholders will own 57% and Itau will have the remaining share.
Now, that 57% I just mentioned briefly is quite an important number. Just this past Friday, Porto Seguro ended talks with Itau’s biggest rival in the banking business, Banco Bradesco, after Bradesco had proposed having a bigger share of the insurance business. So, once again, it all comes down to whom gets the biggest share of the pie…
What does Itau, the big guy here, get? An auto premium revenue of 1609 MM reais for the first half of 2009, home premiums revenue of 41 MM reais for the same period, 2150 K insured autos, 425 K insured home-owners and 20 K brokers. This compares to an auto insurance revenue of 710 MM, home insurance revenue of 157 MM, 1250 K insured autos, 810 K insured insured home-owners and 16.5 K brokers for our big guy. The new company would have had 28% of the auto insurance market and 38% of the residential insurance insurance in Brazil for H1 09. I take those numbers…
The deal is subject to approval from Brazilian insurance and anti-trust regulators. In normal conditions, they would approve it. After Argentina sends Brazil home with a 3-0 humiliation September 5, they probably will take a second look… Vamos Argentina el 5!!
Until the next update guys- Nicolas