In response to inquiries following news reports, Cartica Capital confirmed today that it has delivered a letter to the Board of Directors of CorpBanca S.A. In the letter, Cartica urges the Board to immediately reconsider its approval of the proposed merger with Itaú Unibanco Holding and take appropriate steps to commence an auction process that maximizes value for all shareholders, consistent with the Board’s fiduciary duties.
Cartica believes that the proposed transaction with Itaú as currently structured greatly undercompensates the Bank’s minority shareholders, while securing valuable benefits exclusively for CorpBanca’s controlling shareholder, the Alvaro Saieh-controlled CorpGroup Holding. Cartica previously advised Mr. Saieh privately of its concerns.
With in excess of US$2 billion under management, Cartica Capital manages a concentrated long-only portfolio of publicly-traded equities in Emerging Markets. Cartica engages with companies in a constructive and cooperative manner to influence the direction of each company to improve performance, unlock value, and increase market valuations.
The full text of the letter to CorpBanca’s Board follows: March 3, 2014
Re: Fairness of proposed CorpBanca / Itaú transaction
Dear Members of the Board:
We are writing to inform the Board of our conviction, previously communicated to the Bank’s controlling shareholder, Mr. Álvaro Saieh, that the proposed transaction between CorpBanca SA (the “Bank”) and Itaú greatly undercompensates the Bank’s minority shareholders and extends disproportionate consideration to Mr. Saieh and his affiliates. As one of the Bank’s largest minority shareholders, we believe that the decision to approve the transaction as currently structured constitutes a failure of the Board to discharge its fiduciary duties to all shareholders. Accordingly, we request that you reconsider moving forward with the transaction and instead take immediate steps to oversee a fully transparent process for the sale of the Bank that maximizes value for all shareholders, as your fiduciary duties require.
As you are aware, the Bank confirmed its intention to seek a “combination” with a larger regional institution in a disclosure (hecho esencial) issued on November 29, 2013. Soon thereafter, the financial media reported that Mr. Saieh intended to select the eventual partner based on which suitor offered the greatest degree of influence in the post- merger institution to him and CorpGroup, the holding company through which the Saieh family exercises control over the Bank. In a letter to Mr. Saieh dated December 20, 2013, we insisted that price should be the sole criteria for selecting among the Bank’s suitors and that any arrangement that avoided a tender offer would amount to inequitable treatment of minority shareholders. We also spoke by telephone and met in person with Mr. Saieh in December 2013 to impress on him the fiduciary duty of the Board and its controlling shareholder not to compromise on the value of the deal for all shareholders in exchange for securing special benefits for Mr. Saieh and CorpGroup.
Disregarding the best interests of minority shareholders, Mr. Saieh and the Bank nonetheless agreed to a transaction that will, if completed as currently structured, provide Itaú with effective control of the Bank while conferring numerous valuable benefits to Mr. Saieh and CorpGroup. The market swiftly repudiated the deal: the Bank’s shares dropped precipitously in the days following the announcement, erasing more than US$700 million in shareholder value.1
While the full details of the transaction agreement and the shareholders agreement to which the Bank, Itaú and CorpGroup are parties have not been disclosed, the incomplete and inadequate disclosures that have been made so far clearly reveal that Mr. Saieh and CorpGroup will receive an array of special benefits not shared with other shareholders, including at least the following:
- The purchase by the post-merger bank of CorpGroup’s 12.38% interest in CorpBanca Colombia for US$329 million and of CorpGroup’s co-investors’ interest in such unlisted and illiquid entity for an additional US$565 million at a price significantly higher than fair market value or the value that would be received in an arm’s-length transaction. This purchase of the minority interest in CorpBanca Colombia represents a transfer of value from the Bank’s shareholders to CorpGroup and its co-investors in CorpBanca Colombia.
- A US$950mm credit line to be provided by Itaú to CorpGroup, which provides no benefit to the Bank’s minority shareholders.
- CorpGroup’s rights under the proposed shareholder agreement to appoint the Chairman of the post-merger bank (reported to be the Bank’s current Chairman, Mr. Jorge Saieh) and members of its Board (reported to include Mr. Fernando Massú, the Bank’s current CEO), to veto senior management appointments, and to otherwise influence the structure and composition of the senior management team.
- Tag-along rights and rights of first offer.
- A share liquidity mechanism for the sole benefit of CorpGroup.
- An agreement to give CorpGroup the option to co-invest with Itaú in a regional alliance of banking businesses outside the geographic range of the merged bank.
The paucity of detail on the transaction provided by the Bank’s management thus far means we may not even know the full extent of the disproportionate consideration to be accorded Mr. Saieh and CorpGroup, or that the particulars of these benefits have been accurately reported. Given the special benefits received by Mr. Saieh and his affiliates, we reject the Bank’s assertion that the structure of the transaction as a share-for-share merger means that all shareholders will receive the same treatment. To the contrary, we believe that it is patently evident that the tortured legal structure adopted by Mr. Saieh for the transaction was selected precisely to deprive minority shareholders of the opportunity to have their shares acquired in a tender offer for fair value. And, of course, CorpGroup and its co- investors will be receiving cash, not shares, for their interests in CorpBanca Colombia.
In a letter to Mr. Saieh dated January 31, 2014, we rejected the characterization of the transaction as fair to minority shareholders and asserted our belief that Mr. Saieh and the Bank’s management had negotiated merger terms disadvantageous to the Bank’s minority shareholders in return for special benefits accruing to Mr. Saieh and CorpGroup. We expressed our hope for a constructive dialogue with Mr. Saieh to seek equal treatment for all shareholders. Instead, we were referred to the Bank’s counsel, who dismissed our concerns and asserted that the Bank would provide shareholders with no further information about the transaction.
Faced with the refusal of Mr. Saieh and CorpGroup to engage with us over our objections to the proposed transaction, we now call upon you, the Board of Directors of the Bank, to rectify this situation consistent with your fiduciary duties. We know you understand that your fiduciary duties require you to act in the best interests of all shareholders rather than simply endorsing and implementing the will of the Bank’s controlling shareholder. We believe the best way to maximize value for all shareholders is to conduct an open auction for the Bank without regard to the continuing benefits Mr. Saieh stated would be a key element of any transaction. In addition, the Bank should immediately disclose all the terms, contracts, agreements, understandings and plans for the proposed transaction so that all shareholders may assess for themselves its merits.
As members of the Board of Directors of CorpBanca you are stewards of the Bank and fiduciaries of all shareholders. The affiliated private investment funds managed by Cartica Management, LLC (collectively, the “Cartica Funds”)2 have been shareholders of CorpBanca SA since October 2012 and currently collectively own 10,971,557,595 shares including both common shares and ADRs. These holdings represent approximately 3.22% of the Bank’s outstanding shares. We urge you to take immediate steps to do what is right for all shareholders and run a full and transparent process to maximize shareholder value. We believe that an open and constructive dialogue between the Board and shareholders can contribute to a resolution of the issues raised in this letter and we remain open to such dialogue. However, consistent with our duties as fiduciaries for the investors who have entrusted their capital to Cartica, we are prepared to pursue any and all avenues and remedies available to us to protect the interests of the Cartica Funds as CorpBanca shareholders.
Sincerely, Teresa Barger
Senior Managing Director
Cartica Capital
1 In fact, between November 29, 2013 (the day after CorpBanca announced that it had retained Goldman Sachs and Bank of America) and January 28, 2014 (the day before the announcement of the Itaú transaction), CorpBanca shares traded at a Volume Weighted Average Price (“VWAP”) of CLP 7.163. On January 29, 2014, the day of the announcement, the shares closed at CLP 6.067, a drop of more than 15% from the VWAP .
2 The Cartica Funds are: Cartica Corporate Governance Fund, LP; Cartica Investors, LP; Cartica Capital Partners Master, LP; and Cartica Investors II, LP.
For Funds Society, Madrid
For Fórmate a Fondo