Itau Unibanco Holding S.A. (ITUB) and Porto Seguro have entered into an alliance aimed at the unification of residence and automobile insurance operations.

Itau Unibanco will transfer its residential and car insurance portfolio to a new company to be named Itau Unibanco Seguros de Automovel e Residencial SA. The new company will have equity of $520 million. Its business portfolio will hold 3.4 million cars and 1.2 million insured homes.

Earlier, Porto Seguro was in talk for merger with Banco Bradesco. However the talks failed due to disagreement over the control of the merged company.

Terms of the agreement

The new company Itau Unibanco Seguros de Automovel e Residencial SA will be transferred to Porto Seguro, which in turn will issue shares equal to 30% of its new capital to Itau Unibanco. A holding company named Porto Seguro Itau Unibanco Participacoes will be formed, which shall retain all the shares issued by Porto Seguro owned by them. The stockholders of Porto Seguro will have a 57% stake in the holding company, while Itau Unibanco will hold the balance.

The new company will be managed by Porto Seguro, which is going to operate under the trademarks – Porto Seguro, Itau Unibanco and Azul to offer different products and services through sales channels.

The holding company’s Board of Directors will accommodate two out of five members of Itau Unibanco Board and two out of seven members of Porto Seguro’s Board.

Porto Seguro will remain listed on the Sao Paulo stock exchange.

The senior management and employees of Itau Unibanco who work in the auto and homeowner insurance businesses will be transferred to the new company.

The deal still needs the approval of the companies’ shareholders and the Brazilian insurance and competition regulators.

Outlook

The tie up comes as a major step forward to expand Itau Unibanco’s bancassurance business and at the same time gives Porto Seguro access to more than 50 million clients of the former. By means of this transaction both the companies will be able to provide a complete product and services portfolio in the Brazilian and Uruguayan markets. However, the merger will not be accretive to earnings before 2010.

Zacks Investment Research
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