© Reuters. The logo of Banamex bank is on a branch in Mexico City, Mexico, November 17, 2017. REUTERS/Henry Romero
By Tatiana Bautzer, Saeed Azhar and Isabel Woodford
NEW YORK/LONDON (Reuters) -Citigroup Inc scrapped the sale of its Mexican consumer unit, known as Banamex, and will pursue an initial public offering instead, the bank said on Wednesday.
The bank’s shares slumped more than 3% in early trading.
Mexican conglomerate Grupo Mexico had been in talks to buy the unit. In mid-May, amid speculation the deal was in its final stages, Mexican President Lopez Obrador said in a press conference there “was no problem” with Grupo Mexico buying the business.
But a government decree published days later ordered the “temporary” takeover of a Grupo Mexico-controlled stretch of railway, spooking investors and making talks between the government and the firm “difficult,” Grupo Mexico said.
Shares in Grupo Mexico surged more than 6% after Citi’s announcement.
Mark Mason, Citi’s Chief Financial Officer, said the decision “allows us to resume a modest level of share buybacks this quarter.”
The share repurchases may cheer investors, said Christopher Marinac, director of research at Janney Montgomery Scott.
“They have freed up a little bit of capital because of that deal not happening that allows them to do buybacks,” Marinac said. “And I think in the big picture, doing some buybacks was important.”
CEO SAYS CITI ‘TO FOCUS SOLELY ON AN IPO’
Citi had announced plans to offload the unit more than a year ago as part of a strategic overhaul by CEO Jane Fraser. It now expects the IPO to be completed in 2025.
“After careful consideration, we concluded the optimal path to maximizing the value of Banamex for our shareholders and advancing our goal to simplify our firm is to pivot from our dual path approach to focus solely on an IPO of the business,” Citigroup (NYSE:) CEO Jane Fraser said in a statement.
Recent complications on the sale process weighed on the decision, including the Mexican government’s demands and other factors, said a person with knowledge of the matter who declined to be identified because the discussions were private.
Banamex was acquired for $12.5 billion in 2001, while the latest negotiations valued it around $7 billion.
Billionaire German Larrea’s conglomerate Grupo Mexico took the lead over Mexico’s Banca Mifel as the front runner for the potential sale.
Citigroup first announced in January 2022 it would exit Mexico, ending its 20-year retail presence in the country, and prompting an extended bidding process.
Aside from the potential weakening of the business, Citi also faced restrictions put on any transaction by the Mexican president, including a ban on sweeping layoffs.
In February, Citigroup’s Chief Executive Jane Fraser met with Lopez Obrador. The meeting came amid the bank’s attempt to complete the sale of its local unit.
Since announcing it would exit consumer businesses in 14 markets in Asia, Europe, the Middle East and Mexico, Citi has completed sales in seven markets, including Australia, Bahrain, India, Malaysia, the Philippines, Thailand and Vietnam. It is also winding down consumer businesses in China and Korea, and its overall business in Russia.
This story originally appeared on Investing
