Spanish bank BBVA made a surprise 3.3 billion-euro ($4.1 billion) cash bid on Monday to buy out the rest of Bancomer, Mexico's biggest bank, just as Latin America's economy moves up a gear.
The deal will add more than five percent in cash terms to BBVA's earnings per share from this year, Spain's second-largest bank said, and at 12 Mexican pesos per share offers a premium of 14 percent to Friday's closing Bancomer share price -- a price analysts said was reasonable.
To help raise cash for the bid BBVA said it sold 1.4 billion euros worth of industrial stakes in the last quarter of 2003, reducing its holdings in telecoms multinational Telefonica, oil major Repsol YPF and power utility Iberdrola to just over five percent each.
The bank said it would also issue new shares, which would account for up to 60 percent of the offer price.
As of June BBVA, which also announced a 29.5 percent rise in 2003 net earnings, held 6.95 percent of Telefonica, 6.81 percent of Iberdrola and 8.61 percent of Repsol.
By bidding for the remaining 40.6 percent in Bancomer, BBVA increases its exposure to Mexico, the region's second-biggest economy, at a time when the outlook for the emerging region is improving following several years of weakness.
BBVA's bigger rival Santander Central Hispano reduced its presence in Mexico last year, and is now concentrated in Brazil.
Mexico is expected to have grown 1.2 percent in 2003 and its future looks rosy thanks partly to prospects for U.S. manufacturers' demand for Mexican exports.
"The premium being offered on Bancomer isn't huge, they've always wanted to get a bigger stake in it and now that things have improved in Latin America, I'm not massively surprised that they've done this," said Sheila Garrard, banks analyst at Commerzbank in London.
"Growth prospects for Brazil are better than those in Mexico as loan growth will take longer to take off, but if this is a long term bet it seems like a good thing," she added.
Shares in BBVA were up 0.4 percent to 10.75 euros while the European banking sector was up 0.3 percent at 0857 GMT.
The news put full-year results on a back burner, as the figures were in line with expectations analysts said.
BBVA announced a 29.5 percent rise in 2003 earnings to 2.23 billion euros versus the bank's own forecast for a rise to 2.15 billion euros, which even in September it looked set to overshoot.
BBVA's earnings rose last year, despite sharp currency depreciation that sapped income from Latin America, in comparison with 2002, when it took hefty one-time charges.
Net interest income, or the bank's earnings on core lending and borrowing, was hit by currency weakness -- declines in Latin American currencies and in the dollar versus the euro -- and fell 13.7 percent to 6.74 billion euros.
According to a poll of analysts full-year profit was expected to rise to 2.23 billion euros, while net interest income was seen falling to 6.67 billion euros.
Operating profit fell 12.2 percent to 4.90 billion euros, just ahead of expectations for a fall to 4.89 billion euros.