Citigroup, U.S. Bancorp exit money-losing Brazil card venture

Citigroup Inc and U.S. Bancorp have agreed to sell Brazilian card payment processing joint venture Elavon do Brasil to a local rival for an undisclosed sum, ending months of negotiations to exit the money-losing company.

Both U.S. lenders, which were partners in Elavon for five years, confirmed the transaction on Friday in separate statements that did not specify the value of the sale or other details. U.S. Bancorp owns 50.9 percent of Elavon, with Citigroup holding the remainder.

The buyer, São Paulo-based Stone Pagamentos SA, agreed to replenish Elavon’s capital and provide additional funds for growth as part of the transaction, according to two sources with direct knowledge of the deal. Elavon ended last year with negative equity of 200 million reais ($56 million), leading regulators to press for a prompt capital injection.

Relations between both partners soured, and a sale began to be negotiated late last year after Citigroup failed to come up with money to bolster the finances of Elavon, Brazil’s No. 4 payment processor, Reuters reported in November.

Elavon failed to gain traction in Brazil’s burgeoning $250 billion payment processing market, which is dominated by Cielo SA and Rede, a unit of Itaú Unibanco Holding SA. While Cielo, Rede and peer GetNet Serviços own a combined 97 percent of the market, Elavon has less than 2 percent.

Citigroup’s mounting retail banking losses and rampant competition from Cielo and other rivals thwarted Elavon’s efforts to increase market share in the local card processing market to a targeted 15 percent. Earlier in the year, Citigroup announced intentions to exit Brazil, where it has operated for more than a century.

According to the first source, Stone, a mobility and payments solutions provider, is controlled by Brazilian investment firm Arpex Capital, of which billionaire Jorge Paulo Lemann is a partner, and mid-sized consumer lender Banco Pan SA.

Lemann, whose fortune Forbes magazine estimates at about $31 billion, shares control of Anheuser Busch InBev SA, the world’s largest beer maker, with buyout firm 3G Capital.

Efforts to contact Stone’s media office were unsuccessful.

Greenhill & Co Inc advised Elavon on the deal, with Citigroup’s investment banking unit working on the bank’s side and Stone not using a financial adviser for the transaction, the sources said.

Citigroup shares rose 0.4 percent to $47.01, while U.S. Bancorp added 1.9 percent to $43.36 in afternoon New York Stock Exchange trading.

Source: Reuters