High-profile Brazilian fintech StoneCo (NASDAQ:STNE) is gearing up for a big investment. The company announced Monday that it has signed a definitive agreement to invest in Banco Inter, a digital bank also based in Brazil. Stone is to invest up to 2.5 billion reals ($467 million) in the shares newly issued by the latter company. This will give StoneCo a stake of, at most, just under 5% of its peer.
Following that, StoneCo will act as a "cornerstone investor" in a follow-on public share offering. It will pay 57.84 reals ($10.82) per share in the issue.
Subsequent to this, the two companies will enter into an agreement under which StoneCo is to hold a six-year right of first refusal to any change of control in Banco Inter. This will conform with price thresholds that were not specified. StoneCo will also have a right to place one person on Banco Inter's nine-seat board of directors.
StoneCo wrote in the press release trumpeting the deal that it and Banco Inter are "working together to explore and engage in partnership opportunities aimed at bringing Inter consumers to Stone merchants, as well as maximize the value proposition for both Inter's consumer and Stone's seller ecosystems."
Although neither company is yet a dominant player in the Brazilian financial services sector, they run highly complimentary businesses, so this move makes a lot of sense.
StoneCo said it will fund its Banco Inter investment with a mix of cash on hand and debt that has been earmarked for the deal. It didn't provide a more detailed breakdown of this financing. It's very possible that the company will lean heavily on the former; as of the end of 2020, it held nearly $2.04 billion in cash and short-term investments, with $471 million purely in cash.