June 26, 2018 / 8:11 PM / 2 months ago

Banorte's top foreign investors voted against Interacciones deal -documents

MEXICO CITY, June 26 (Reuters) - The largest foreign institutional investors in Mexican bank Grupo Financiero Banorte voted against its controversial acquisition of the smaller Grupo Financiero Interacciones, documents from data firm Proxy Insight show.

If approved by Mexican regulators, the $1.4 billion half-cash, half-stock deal, which a majority of Banorte shareholders approved in December, would be the country’s largest banking acquisition since 2001 when Citigroup bought Grupo Financiero Banamex-Accival.

Banorte is already the largest Mexican-owned bank and its chairman, Carlos Hank Gonzalez, is part of an influential family with ties to the ruling Institutional Revolutionary Party.

Hank Gonzalez is the son of Interacciones Chairman Carlos Hank Rhon, and was the bank’s chief executive until 2014.

In December, 71.6 percent of Banorte shareholders with voting rights who did vote backed the deal.

But records from Proxy Insight, which collected and analyzed data from 88 shareholder ballots, show that while many foreign investors with smaller positions voted in favor of the deal, many large ones voted against it.

Those opposed included heavyweights like BlackRock and Aberdeen Standard Investment, according to the previously unreported data compiled for Reuters. The asset managers are Banorte’s largest and second-largest foreign institutional investors, according to Thomson Reuters Eikon data.

Other high profile shareholders who opposed the deal included APG Asset Management and Norges Bank Investment Management although Harding Loevner and The Vanguard Group voted in favor, the Proxy Insight data shows. The latter are the third and fourth-largest foreign institutional investors, according to Eikon data.

Banorte declined to comment but addressed the conflicts of interest in a public document related to the acquisition, saying it could be “accretive” to Banorte’s low earnings per share while preserving capital strength and return on equity goals.

Interacciones, which specializes in lending to governments, did not respond to requests for comment.

Aberdeen Senior Investment Manager Fiona Manning said that even though the deal was overseen by independent board members, it was “an unnecessary acquisition” and posed conflicts of interest due to the family ties between the banks.

“When Carlos Hank Gonzalez joined the board of Banorte, we had a number of discussions and the company stated publicly at that time that - as a related party - there would be no transaction between Banorte and Interacciones,” she said in an interview.

BlackRock declined to comment.

The Hanks own 69.32 percent of Interacciones, Eikon data shows, with Hank Rhon owning 40.67 percent, Hank Gonzalez 19.93 percent and Graciela Hank Gonzalez 8.72 percent.

The Gonzalez Family Trust owns 10.4 percent of Banorte, the Hank Rhon Family 2.6 percent and “other insiders” 1.6 percent, documents related to the deal show.

Banorte said the trust would vote in line with the majority of shareholders, meaning that while it did not sway the vote the overall approval rate would have been lower without the trust’s backing.

“We still have concerns over the fit between the two businesses,” Manning added. “Banorte has a huge opportunity in the retail banking space and they should be putting their energy into growing that part of the business.”

Others with smaller positions, according to Eikon data, also voted against the deal, including Schroders, BMO Global Asset Management (F&C), British Columbia Investment Management Corporation and Indiana Public Retirement System.

Those asset managers declined to comment.

Rolando Rodrigues, an analyst at UK fund manager Sarasin & Partners, said it voted against the acquisition because of “an abundance of governance issues.”

“This was a related party transaction with meaningful conflicts of interest,” Rodrigues said in an interview.

Mexican antitrust regulator Cofece has yet to approve the acquisition, and declined to comment on the specifics.

The banks have less than a week to get approval to avoid it spilling into the transition period after Mexico’s presidential election on Sunday, which could see leftist Andres Manuel Lopez Obrador come to power. (Reporting by Stefanie Eschenbacher; Editing by Richard Chang)

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