Citigroup Inc. made a failed attempt to run the Pennsylvania Turnpike. Now an affiliate of the downtrodden financial company on Monday agreed to pay €7.9 billion ($10.2 billion) for Spanish highway-operating firm
Itinere Infraestructuras SA. Some say the deal -- if it does goes through -- is a bonanza for Citigroup because of the supposed bargain price for the target, while others warn it maybe a financial dead end -- the kind of deal that has put Citigroup in its precarious situation, culminating in the New York bank crawling to the U.S. government for a bailout.
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All signs show that ill-informed investors are less than pleased with the bid as Citigroup's stock dropped by nearly 15% during Monday trading. Investors are likely fearing the assumption of €5 billion in debt that Citi Infrastructure Partners is willing to incur to make the deal happen. However, Citigroup is not directly exposed to the additional debt because it only owns 15% of the fund, meaning the exposure to any risk is limited. Meanwhile, some falsely believe the U.S. taxpayer is being put on the hook for a deal that doesn't shore up Citi's finances in the short term but releases an outflow of €7.9 billion (even though the money is coming from a limited partnership run by Citi, and not the actual bank). Here's a few comments from MarketWatch readers:
"What was the Citi Bailout all about, They are using U.S. tax payer money to buy highways, what is the government thinking?" futurehome said
"I agree that Citigroup is clearly using the bailout money to fund this acquisition. Congress should stop this and other deals like this before we (the taxpayer) dig ourselves into a deeper hole," Joseph Carbone said.
"It's you that is not reading carefully, guru. Citibank funds are all routinely bailed out when they lose money -- to avoid shareholder lawsuits. This has happened at least twice in the past 12 months as I recall. This fund, if it's about to lose, will also get bailed out with taxpayer money. It's the classic Dhandho investment: heads I win, tails the taxpayers lose and refund my money back! Why would anybody not want to invest in such a deal?" Avram Smith said.
If the deal does go through, Itinere should bring a steady stream of income for Citi Infrastructure Parters. Of course, the distinction between Citi and its arm's-length affiliate is lost on the masses. - Gerald Magpily
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