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Canyon Capital Opposes Santander Consumer Buyback Plan

Canyon Capital Opposes Santander Consumer Buyback Plan

(Bloomberg) -- The second-largest investor in Santander Consumer USA Holdings Inc. plans to come out against the auto lender’s proposed $1 billion tender offer for its own shares, arguing it should increase the proposed price, according to people familiar with the matter.

Canyon Capital Advisors, which owns a 4.1% stake in Santander Consumer, intends to come out against offer, arguing it also provides significant benefits to parent company Banco Santander SA while inadequately compensating minority holders, the people said, asking not to be identified because the matter is private.

The Los Angeles-based investment firm intends to argue that the tender offer should be raised, they said. Santander Consumer announced last month it would pay $23 to $26 per share in a modified Dutch auction.

Canyon Capital believes, the people said, that range is well below the benchmarks set in two prior transactions: the company’s 2014 initial public offering and company’s repurchase of shares held by former Chief Executive Officer Tom Dundon in 2015.

A buyback at the top end of the range would value Santander Consumer’s stock at about par to tangible book value, or assets minus goodwill and other intangibles, according to Canyon Capital’s calculations. That compares with the more than 3 times tangible book fetched in its IPO and the 2.5 times tangible book paid for Dundon’s stock.

Better Premium

Canyon Capital doesn’t like the premium shareholders would be getting in the potential buyback either.

The top end of the range is about 12% higher than where the stock was trading the day before the offer was announced. That’s lower than premiums paid in other buyouts and tender offers at Banco Santander affiliates in recent years, including a 22% premium for its subsidiary in Mexico and 42% for Banco Espanol de Credito SA, they said.

A successful tender offer would also boost Banco Santander’s ownership of the auto lender to 80% from about 72%, which would benefit the Spanish lender, the people said. It would allow the parent company to consolidate Santander Consumer’s tax assets and liabilities with other subsidiaries it owns similar stakes in, triggering a capital boost of roughly 500 million euros ($544 million), they said.

That would enable Banco Santander to issue about 4 billion euros worth of additional loans, they said.

Minority shareholders would also be left with a much less liquid stock, following a buyback of up too 13% Santander Consumer’s outstanding shares, the people said.

A representative for Santander Consumer wasn’t immediately available to respond to a request for comment. A representative for Canyon Capital declined to comment.

Santander Consumer’s shares traded at $23.18 a share the day before the tender offer was announced. The stock closed down less than 1% to $25.97 in New York trading Wednesday, giving the company a market value of $8.8 billion.

Another top-10 shareholder, who spoke to Bloomberg on the condition of anonymity, also said Santander Consumer should increase the offer price because it undervalues the stock and benefits the parent company.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Matthew Monks, Michael Hytha

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