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Banco Bilbao Buys U.S. Bank Compass for $9.6 Billion

Date: Friday, February 16, 2007
Author: Todd White & Joao Lima, Bloomberg.com

(Bloomberg) -- Banco Bilbao Vizcaya Argentaria SA, Spain's second-biggest bank, agreed to buy Compass Bancshares Inc. for $9.6 billion to add more than 400 branches in six southern U.S. states.

Investors in Birmingham, Alabama-based Compass will get $71.82 in cash or 2.8 new BBVA shares for each share, the Bilbao, Spain-based bank said today in a filing. The cash bid is 8.2 percent more than Compass's closing price yesterday.

BBVA, like larger rival Santander Central Hispano SA, built a branch network in Latin America to gain customers in Spanish- speaking countries where growth outpaces Europe. With the Compass purchase, Chairman Francisco Gonzalez is tapping markets with Hispanic populations while reducing reliance on emerging markets. BBVA shares fell on concern the bank may be overpaying in its biggest purchase outside Spain.

``It's quite an expensive deal,'' said Adrian Darley, who helps oversee the equivalent of $71 billion at Resolution Asset Management in London, including BBVA shares. ``Still, BBVA has had a very acquisitive strategy and they have done a good job in the past.''

BBVA shares fell 54 cents, or 2.7 percent, to 19.43 euros at 4:20 p.m. in Madrid. Its American depositary receipts, each worth one regular share, fell 66 cents, or 2.5 percent, to $25.57 in New York Stock Exchange composite trading. The regular shares have risen 17 percent in the past year, giving the bank a market value of 69 billion euros ($90 billion).

Compass Bancshares stock rose $4.33, or 6.5 percent, to a record close of $70.70 after jumping 7.4 percent yesterday on speculation about a possible takeover bid. They have gained 43 percent in the past year.

Third Purchase

The acquisition is the third in the southern U.S. in eight months by Gonzalez, who plans to form the largest regional banking network in the U.S. Sunbelt. Last June, the bank spent $2.64 billion on two Texas banks, McAllen-based Texas Regional Bancshares Inc. and Fort Worth-based State National Bancshares Inc.

``This is a very important transaction from a strategic point of view,'' said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages about $9.4 billion. ``The Texas market has very high growth potential, and the bank also is positioned in Florida.''

Compass Bancshares operates branches in four of the seven fastest growing U.S. states by population -- Arizona, Florida, Texas and Colorado -- as well as Alabama and New Mexico. Profit for 2006 rose 15 percent to a record $460.4 million, the bank said in January. Compass listed $34.1 billion in assets at the end of 2006.

Hispanics are the fastest-growing segment of the U.S. population, and total 44.7 million people, according to estimates from the Pew Hispanic Center, a Washington-based research organization.

Mexico, Spain

BBVA said it will finance about half the purchase with new shares and sell its 5 percent stake in Iberdrola SA, Spain's second-largest power company, to fund the transaction. The sale of that holding should yield a capital gain of 844 million euros, the bank said.

The Spanish bank's offer values Compass Bancshares at 3.4 times book value, more than BBVA paid in either of the U.S. purchases last year, Bloomberg analytics show.

A credit default swap based on $10 million of Banco Bilbao bonds fell to 8,667 euros from 8,800 euros yesterday, according to data compiled by Bloomberg.

Gonzalez led the 2000 acquisition of Bancomer, Mexico's largest bank. Since then he fomented cross-border business with BBVA branches in U.S. border states, building on the wire- transfer market for Latin American immigrants. The bank generated 1.8 billion euros in profit from Mexico and the U.S. in 2006, accounting for about 38 percent of the total.

`Fragmented' Market

``They believe they can do banking better in the U.S. than the Americans do,'' said Arturo de Frias, an analyst at Dresdner Kleinwort in London. ``They think U.S. banking is too product- driven,'' competing mostly on price, ``and not enough client- driven, where you build relationships'' to win business, he said. He has a ``neutral'' rating on BBVA's shares.

Faced with slower mortgage lending growth in its home market of Spain, BBVA pushed consumer credit in Spain and Mexico. In the U.S., it has generated more revenue from clients who do business with Mexico.

The bank failed in a bid to buy Italy's Banca Nazionale del Lavoro SpA after offering 8.5 billion euros for the Rome-based lender in March 2005. Last year it agreed to buy a 15 percent stake in China's Citic International Financial Holdings Ltd.

The Compass purchase will increase the bank's U.S. branches to 622 and boost U.S. based assets to $47 billion. The American market will represent about 10 percent of total profit after the acquisition.

``The U.S. banking market, similarly to Italy's, is very fragmented and there are quite a lot of possibilities for making operational improvements,'' said Gonzalo Lardies, who helps oversee about $200 million at Metagestion SGIIC SA in Madrid including Banco Bilbao shares.

The value of worldwide mergers and acquisitions this year may increase 20 percent to a record, Piero Novelli, co-head of global takeovers at UBS AG, said in an interview yesterday. Takeovers surged to a record $3.6 trillion in 2006 from $2.6 trillion in 2005, according to data compiled by Bloomberg.

Morgan Stanley advised BBVA on the transaction, and Cleary Gottlieb Steen & Hamilton LLP provided legal counsel.

Spain's largest bank is Santander Central Hispano SA.

To contact the reporters on this story: Todd White in Madrid at twhite2@bloomberg.net ; Joao Lima in Madrid at jlima1@bloomberg.net