It might be one of the most depressing days of the year for a Sevillian. Litter covers the streets of Calle Sierpes and Avenida de la Constituci??n. The parade floats, or pasos, ornately decorated wooden statues that pay homage to Jesus and the Virgin Mary, are gently placed into storage for another year. Teary-eyed men and women, who crowded the streets and rooftops in order to mourn the death of Christ, slink back into their homes, weary from hours spent on their feet in the sun.
Yet this year, at the end of Semana Santa, the Andalusian holy week, one group is still smiling. Perhaps it is because this year, as the parade made its famous loop through the streets of Seville, it had to pass three different Banco Santander Central Hispanos (BSCH) before making its way to the cathedral.
No one has taken more advantage of Spain's changing economy than Grupo Santander. BSCH, headquartered in Madrid, is currently the ninth-largest bank in the world and the fourth-largest in Europe based on market capitalization. The bank's main source of income is the interest it gains from its retail banking division, which earns 82 percent of the bank's profits.
The company claims to have a potential market of 800 million people within Latin America and Europe alone. With 126,000 employees, 63 million customers, 10,000 branches, 2.6 million shareholders and a net profit of $2.8 billion last quarter, it is easy to see why Santander is considered one of the world's strongest banks.
Yet, the success of Banco Santander has largely been a product of a string of successful mergers and acquisitions over the past 15 years. Between 1994 and 2006 Santander has acquired Banesto, Banco Central Hispano, Bonespa (Brazil), AKG group, Banco de Santiago (Chile), Finconsumo (Italy), CC Holding, Or?genes (Argentina), CC-Bank (Germany) and most recently, Abbey National PLC.
The bank has also seen its revenue boosted as of late by selling partial stakes of major companies such as the Royal Bank of Scotland, electric company Union Femosa SA and telecommunications company Grupo Auna SA.
The smile on the face of Grupo Santader, however, began to fade with an attempt at making a second move into the United States. Previously, Santander sold a stake in First Fidelity after it was purchased by First Union, which earned the bank a $1.7 billion profit.
American shareholders have caused quite a ruckus at Santander's most recent attempt at gaining entrance into the United States. The deal was set up as a three-way deal with Santander gaining a $2.4 billion, 19.8 percent stake in the Philadelphia based Sovereign Bancorp Inc., with an option to buy the whole bank after 2008. Sovereign planned to use the cash towards the purchase of the Independence Community Bank of Brooklyn for $3.6 billion.
To Santander, the purchase of Sovereign appeared to be a cheap way to gain a toehold in the United States. To Relational Investors, a fund group and investment advisor based in San Diego that happens to be Sovereign's largest shareholder at 7.3 percent, the deal seemed fishy.
First off, Sovereign and Relational's relationship has been rocky for awhile. Relational has repeatedly called on Sovereign to eliminate conflicts of interests within its board members and to do something about its stock price, currently at $21.85 per share, which they feel is undervalued because of poor management. In the Santander deal, Santander will pay $27 per share.
Secondly, the fact that the entire acquisition seemed to have been set up specifically to avoid a New York Stock Exchange (NYSE) rule that states that a company must seek shareholder approval on any deal involving a greater than 20 percent sale of the firm is another issue. (The Santander-Sovereign deal is for 19.8 percent.)
To counter the controversy, BSCH hired the law firm of Bracewell & Giuliani to conduct an independent review and report their findings. Rudy Giuliani, "America's Mayor," told the Wall Street Journal that Santander "probably [has] been involved with more controversy than they thought they'd be involved in."
Santander hoped the high-profile endorsement would help its case on the federal level and turn public opinion against the third-party organizations that seemed set on interfering with the acquisition. Relational responded to the review by asking, "How can it be an independent view if [Santander] paid for it and we haven't been consulted?"
Finally, on Mar. 23, after appeals to the NYSE, the SEC and a Pennsylvania lawsuit, Relational agreed to let the deal pass and drop all litigation. The outcome, after intense negotiations, led to Relational co-head Ralph Whitworth becoming the Sovereign director, sharing leadership with Sidhu, and another Relational executive to be named to Sovereign's board.
While the end result appears to be a huge win for the Spanish bank, too many American investors feel Santander's deal with Sovereign represents a gross violation of shareholder's rights. Many are concerned with the precedent the deal will set for future deals between European and Asian groups investing in American banks. If the Santander deal pushed the envelope as close to the limit as it has ever been, what is going to stop other foreign banks from trying to do the same, or to go even further?
But after six months of watching from a distance as Sovereign battled its own shareholders, Santander now has an incredible opportunity for growth in a very stable market. Once again, BSCH has earned the right to smile.
