Grupo Mexico has formally announced it will not engage in a bidding war for Banamex, Citigroup's retail banking unit in Mexico. The mining and transportation conglomerate stated its current offer already places a higher valuation on the bank than a competing bid, aiming to reassure investors after its stock experienced significant volatility.
Key Takeaways
- Grupo Mexico will not increase its $9.3 billion offer for Banamex, stating it already represents a premium valuation.
- The announcement follows a sharp drop in Grupo Mexico's shares, which wiped out approximately $10.7 billion in market value.
- Citigroup is still considering an Initial Public Offering (IPO) for Banamex and has a separate deal with billionaire Fernando Chico Pardo.
- Grupo Mexico outlined a plan to sell 40% of Banamex to Mexican investors and pension funds if its bid is successful.
Grupo Mexico Clarifies Position on Banamex Acquisition
In a move to calm market uncertainty, Grupo Mexico issued a statement on Tuesday clarifying its acquisition strategy for Banamex. The company confirmed it would not escalate its offer, effectively ruling out a competitive bidding war for the prominent retail bank.
The conglomerate, controlled by one of Mexico's wealthiest individuals, German Larrea, asserted that its $9.3 billion proposal already values Banamex more favorably than a previously accepted offer for a minority stake. This declaration is intended to stabilize the company's stock and provide clarity on its financial commitments.
A Renewed Pursuit
This is not Grupo Mexico's first attempt to acquire Banamex. The company withdrew from the acquisition race in 2023 amid political tensions with the previous Mexican administration. At that time, Citigroup pivoted its strategy toward taking the unit public through an IPO.
Market Reaction and Investor Concerns
The clarification from Grupo Mexico comes after a turbulent day of trading. On Monday, the company's shares plunged, resulting in a market capitalization loss of approximately $10.7 billion. This loss notably exceeded the total value of its bid for Banamex.
Analysts had speculated that a prolonged and costly bidding war could be on the horizon, which contributed to the negative investor sentiment. Following Tuesday's announcement, Grupo Mexico's shares saw a modest recovery, ticking up by around 1.5% in mid-day trading as investors processed the company's more disciplined approach.
Market Value Fluctuation
The market's reaction was swift and severe. The $10.7 billion loss in market value on Monday was more than the entire $9.3 billion Grupo Mexico offered for the bank, highlighting significant shareholder apprehension about the potential deal.
Citi's Strategy and Competing Interests
While Grupo Mexico has made its offer, Citigroup has not abandoned its original plans. The U.S. banking giant is still proceeding with its strategy to sell off its Mexican retail arm, a process that has been ongoing for several years.
Before Grupo Mexico re-entered the picture, Citi had announced a significant deal with Mexican billionaire Fernando Chico Pardo, the chairman of airport operator ASUR. The agreement involves selling a 25% stake in Banamex to Chico Pardo for approximately $2.3 billion.
According to sources familiar with the matter, Citi views this transaction as a way to establish a minimum valuation, or a price floor, for Banamex shares ahead of a potential IPO. While an all-cash offer from Grupo Mexico might be attractive to some investors, Citi has indicated it remains supportive of its dual-track plan involving Chico Pardo and a public listing.
Details of Grupo Mexico's Proposed Structure
Grupo Mexico has provided further details on how it would structure the acquisition if its bid were to succeed. The company plans to maintain significant Mexican ownership of the historic banking institution.
Ownership and Investment Plan
A key component of the proposal involves selling off 40% of Banamex to a consortium of Mexican private investors and pension funds. Grupo Mexico stated it has already secured commitments from these parties to facilitate the sale.
The company also suggested it could launch a subsequent public offer to allow smaller, retail investors to participate in the ownership of Banamex. This approach aligns with the Mexican government's stated preference for the bank to remain under Mexican control.
Furthermore, Grupo Mexico indicated it would be open to allowing Fernando Chico Pardo's purchase of a minority stake to proceed. Under this scenario, Grupo Mexico would acquire the remaining portion of the bank at the same valuation established in the Chico Pardo deal.
Funding the Acquisition
Addressing another key investor concern, Grupo Mexico detailed its financing plan for the potential acquisition. The company emphasized that the deal would not require it to take on a significant new debt load.
According to the statement, the company would need less than $2 billion in additional financing to complete the purchase. This amount, it said, is already covered through pre-arranged credit lines with financial institutions. This information is meant to reassure shareholders that the company's balance sheet will remain strong.
Grupo Mexico also confirmed that its existing investment plans and capital expenditure projects would continue as scheduled, regardless of the outcome of the Banamex bid. This signals that the potential acquisition is not expected to disrupt the company's core mining and transportation operations.
