Citigroup's ( C) purchase of a Spanish highway operator may come as a surprise to investors expecting the struggling banking titan to scale back in the wake of a government bailout last month. Spanish construction company Sacyr Vallehermoso said Monday it has agreed to sell its highway-operating unit, Itinere, to alternative investment unit Citi Infrastructure Investors in a deal valued at nearly 7.9 billion euros ($10 billion). The sale involves 2.87 billion euros in cash and 5 billion euros in assumed debt. Citi will offer to buy all of Itinere's stock at 3.96 euros ($5.04) a share, the Spanish construction company said. It will first sell Citi a 42.8% stake in Itinere, and once this is complete, another 11.6% stake, Sacyr Vallehermoso said. Sacyr Vallehermoso has been hard hit by the collapse of Spain's real estate bubble and is eager to ease its debt load. Citi Infrastructure Investors is focused on long-term investments in core infrastructure, largely in developed countries. The fund, less than two years old, "is seeking to establish a small number of best-in-class infrastructure platforms for growth and long-term investment, and so we are delighted to be able to announce this investment in Itinere -- undeniably a global leader in toll roads and consistent with our strategy," said Juan Béjar, co-head and partner of Citi Infrastructure Investors, in a release. But the move is somewhat curious, given Citigroup has been vocal about its strategy to pare down non-core businesses and assets. Critics' call to break up of the financial institution, either through a sale or spinoff of certain businesses, grew louder after the Treasury bailed out the big New York bank by investing an additional $20 billion through Troubled Asset Relief Program, on top of the $25 billion it had already been granted through the TARP plan.
A Citi spokesman in London declined to comment further on the Itinere deal. Citi CFO Gary Crittenden said in a recent interview with Business Week that the company has so far cut $300 billion of "relatively low-returning assets." Still, Crittenden defended Citi's decision to keep its universal banking model intact, noting how "monoline" finance companies like mortgage lenders, consumer finance firms and investment banks "have morphed one by one to have deposit funding." "
Y ou have to ask yourself a very sober question about splitting up Citi: If we spun off a standalone wholesale business, would it have the ability to fund itself wholesale in today's environment?" asked Crittenden. "The universal bank model also is the predominant model in the developing world. We think about options and alternatives in the context of the fundamental strategy that CEO Vikram Pandit laid out." As Citi's stock price plunged 60% in one week last month, Citi was rumored to be considering auctioning off pieces of the company or a sale. The bailout was a dramatic change in events for Citi, which just last month was engaged in a bitter legal battle over the ownership of Wachovia ( WB). Citi had agreed to purchase Wachovia's banking operations, with federal assistance to offset anticipated losses in the Charlotte lender's portfolio. But Wells Fargo ( WFC) swooped in with a better offer, one that did not require federal assistance, to seal a deal for Wachovia. Crittenden didn't address the possibility of a sale of one of Citi's businesses.
Separately, media reports over the weekend said that Citi plans to sell its Japanese trust banking unit. The bank plans to begin tender offers next week to determine the buyer of NikkoCiti Trust and Banking, its trust banking operation in Japan, for about 40 billion yen ($416.7 million), the Nikkei business newspaper reported. Citi also plans to cut jobs through early retirements at its Japanese brokerage unit Nikko Cordial Securities, and to further trim its Japan operations, the Nikkei said. The bank said earlier this month it planned to cut 53,000 jobs, on top of 22,000 cuts previously announced. A Citi spokeswoman declined to comment on the Japanese unit sale on Monday.