XP announces acquisition of Banco Modal after an agreement of approximately R$ 3 billion

A XP Inc. announced this Friday (7) that it has closed an agreement to acquire the Banco Modal. With this, the investment company will incorporate 100% of the bank’s shares, in exchange for 19.5 million shares that will be issued and offered to current shareholders.

The papers issued will be XP class A shares, traded on the stock exchange. Nasdaq, in the United States, or in share receipts traded on the Brazilian stock exchange, the so-called BDRs. Considering the current price, the total shares are equivalent to approximately R$ 3 billion.

The amount to be paid is equivalent to a 35% premium over the average price of Banco Modal in the last thirty days. With the agreement, it will be incorporated into a subsidiary of XP Inc.

If the agreement is not approved by the bank’s minority shareholders, XP will incorporate the equivalent of 55.7% of the shares, guaranteeing the right of the other shareholders to sell the shares under the same conditions.

With the merger, XP and Banco Modal now have 3.8 million active customers, with net revenue of R$ 11.8 billion in the last twelve months to September 2021.

In a statement, XP stated that, with the purchase, the two companies “will accelerate the process of disruption that has been taking place in the financial industry in Brazil, characterized by a high growth potential and few dominant players.”

Founded in 1995, Banco Modal stated in a note that “it will remain independent and segregated, despite being part of the XP Group and accessing its infrastructure, know-how and technology, taking advantage of revenue synergies and improvements in the customer experience”.

In a relevant fact, the bank informed that it will call a general meeting of shareholders to resolve on the conversion of its preferred shares into common shares, and on the migration from the Corporate Governance segment to the Novo Mercado segment of the B3, the Brazilian stock exchange.

The total shares issued by XP represent 3.49% of its share capital. The operation is expected to be completed within 15 months, and Banco Modal’s minority shareholders will have the so-called “right of withdrawal”, being able to give up the shares they own in exchange for a reimbursement value that will be communicated in the future.

The acquisition will still need to be approved by the Administrative Council for Economic Defense (Cade) and by central bank.

XP Inc already owns the brands Clear, Rico and XP Investimentos, operating in the financial market segment.

After the announcement, Banco Modal’s shares on B3 (MODL11) started to rise, leaving the closing at the historical low on Thursday (6), at R$8.35. Around 10:35 am, the increase was 44.91%, with the unit costing R$ 12.10. The bank debuted on the stock exchange in June 2021.