You Might Indeed Want STD
Saturday, October 25th, 2008Banco Santander is “one of those careful institutions that has been bargain-hunting in the wreckage of the financial system.” It is “emerging as one of the few winners in the global economic crisis.” It is profitable, with a very attractive P/E ratio of 4.89, and a somewhat less attractive forward P/E ratio of 9.89 as of October 24th. Its current dividend yield is 8.2%. It has raised its annual dividend generally over the past 20 years, and raised it each year for the past five years. Clearly, this trillion-dollar bank’s stock price has been unfairly punished by the current financial crisis. (The effect of the current crisis may have been further compounded by the listing of Banco Santander’s ADRs on the NYSE under the unfortunate ticker symbol STD.)
But wait, there’s more!
Banco Santander recently announced a friendly acquisition of domestic Sovereign Bank (SOV) in a stock-for-stock trade. If I buy 10,000 shares of SOV, then when the acquisition closes in Q1 of 2009, I will receive 2,924 shares of STD. On Friday, SOV closed at $2.28, and STD at $9.00. So for the price of $22,280, I will receive shares worth $26,316, a 15% return in under six months.
STD’s price is likely to rise as the crisis eases.
It is certainly possible that this international bank’s assets, largely denominated in Euros, will rise in value as the US dollar declines to levels just preceding the current financial crisis.
These considerations, in combination, make STD look attractive indeed.
The stock price of an acquisition target usually jumps to just under the purchase price announced by the buyer. The difference is usually due to the market’s consideration that the acquirer may find a skeleton in the target’s closet, and the acquisition may not close after all. (Rarely, the price jumps over the announced purchase price. This is due to the market’s expectation that the acquirer may raise its bid, or that a competing acquirer may start a bidding war.) However, the risk of the acquisition not happening seems minimal in this case. Banco Santander already knows all about Sovereign bank, having acquired 25% of its shares in 2005.