Raging Capital Management, LLC, a long-term shareholder of Popular Inc. (BPOP) said in a letter delivered to the institution’s board of director that the bank is “significantly undervalued” ad urges adopting a $1 billion stock repurchase plan.
In the letter signed by William C. Martin, chairman and chief investment officer of Raging Capital Management, LLC, urged Popular Inc.’s board to “take timely and aggressive action to unlock shareholder value.”
Raging Capital Management owns approximately 700,000 shares of Popular Inc.’s common stock.
Specifically, the company called for the Board to:
- Adopt a $1 billion stock repurchase plan (representing ~20% of the float), at a minimum, to be executed over the next two years; and,
- Double the current dividend payout ratio.
“These two steps would materially boost BPOP’s annual earnings power to [more than] $8 per share and return on equity to more than 15%,” Martin said in the letter.
“Even in this conservative scenario, BPOP would remain one of the most overcapitalized banks in North America with a ~14% CET1 ratio and minimal change to the company’s financial flexibility or significant, ongoing earnings power,” he said.
Raging Capital Management also called upon Popular Inc.’s board to hire an investment banking firm to explore the possibilities of a spin-off to shareholders of BPOP’s 16% stake in Evertec Inc., worth about $360 million; divest its Popular Community Bank stateside subsidiary, which accounts for roughly 26% of the company’s loan exposure; and sell the entire company.
“We believe BPOP is one of the most undervalued banks in North America. At the same time, we believe BPOP is also one of the most overcapitalized banks in North America,” Martin said in the letter.
“Implementing our proposed buyback program and enhancing the dividend payout ratio would be a good first step to confirm that you are serious about unlocking shareholder value,” he said.
“Next, you should hire a nationally recognized investment bank to explore strategic alternatives. We estimate that a more appropriately capitalized BPOP would be valued more in-line with its mainland peers and be worth around $90 per share in the public markets, and perhaps more in various spin-off and/or sale scenarios,” Martin added.
In a statement, Popular Inc. confirmed the receipt of Raging Capital Management’s letter and has shared with Popular’s board of directors.
“Popular always seeks to maintain an open and constructive dialogue with its shareholders. Popular will review the publicly released letter that Raging Capital Management sent to the Popular Board,” the financial institution said.