XP and Itaú Unibanco: From the Products of Investment to the “Desbancarização” Process A XP e o Itaú Unibanco: dos Produtos de Investimento a Desbancarização

Administração: Ensino e Pesquisa Rio de Janeiro v. 21 no 2 p. 207–230 Maio-Ago 2020 DOI 10.13058/raep.2020.v21n2.1749 ISSN 2358-0917 XP and Itaú Unibanco: From the Products of Investment to the “Desbancarização” Process A XP e o Itaú Unibanco: dos Produtos de Investimento a Desbancarização Raul Beal Partyka — Jeferson Lana — Rosilene Marcon Administração: Ensino e Pesquisa Rio de Janeiro v. 21 no 2 p. 207–230 Maio-Ago 2020 DOI 10.13058/raep.2020.v21n2.1749 ISSN 2358-0917 208 maior grupo de investimentos do Brasil. Já para o Itaú Unibanco – maior player do mercado passa a ter a carteira da XP pronta e elimina um concorrente que lhe tirava market share. O caso indica discussões sobre a lógica por trás da aquisição da XP pelo Itaú Unibanco. Ainda, permite indagar se não seria capaz o maior banco do Brasil, desenvolver tais capacidades adquiridas da corretora, além de questionar se as capacidades internalizadas da XP são tão valiosas a ponto de tamanho investimento. Palavras-chave: Bancos, Corretoras, Teoria do custo de transação, Inovação tecnológica, Cenários econômicos.

This teaching case presents the narrative of the acquisition of XP Investimentos by Itaú Unibanco. The bank offered to buy XP Investimentos. This movement occurred shortly before the broker asked to register for its IPO (Initial Offering of Shares, acronym in English) on the Brazilian stock exchange (B3). The objective of the study is to encourage discussions of the acquisition operation for the themes of governance structure and the theory of transaction costs amid technological innovation in the Brazilian financial market. On the XP side, the plan was clear: in one stroke, stay with the asset and eliminate a competitor, and now you can not only dream of being the largest investment group in Brazil. For Itaú Unibanco -the largest player in the market -it now has the XP portfolio ready and eliminates a competitor that took its market share. The case indicates discussions about the logic behind Itaú Unibanco's acquisition of XP. Still, it allows asking whether the largest bank in Brazil would not be able to develop such capacities acquired from the broker, in addition to questioning whether XP's internalized capacities are so valuable to the point of such investment. Keywords: Banks, Brokers, Transaction cost theory, Technological innovation, Economic scenarios.
Este caso para ensino apresenta a narrativa da aquisição da XP Investimentos pelo Itaú Unibanco. O banco ofertou a compra da XP Investimentos. Este movimento ocorreu pouco antes da corretora pedir o registro para realizar seu IPO (Oferta Inicial de Ações, sigla em inglês) na bolsa de valores brasileira (B3). O objetivo do estudo é impulsionar as discussões da operação de aquisição para os temas de estrutura de governança e a teoria dos custos de transação em meio a inovação tecnológica no mercado financeiro brasileiro. Pelo lado da XP o plano era claro: em uma tacada só, ficar com o ativo e eliminar um concorrente, podendo agora não apenas sonhar em ser o ago, we were already convinced that we wanted the operation (with Itaú). As we were not sure if she was going to leave, we took the IPO process in parallel because it was the only thing we had on hand if everything went wrong." (DYNIEWICZ; LUZ, 2017).
Also, on May 10, XP confirmed its intention to sell a minority stake, but said it would continue with its plan to sell shares in B3. The amount paid for the participation, according to calculations by Empiricus Research, points to a valuation of 25 to 30 times the profits (KAHIL, 2017). For Counselor Cristiane, from CADE, XP would exercise its PUT for at least two reasons: (1) either because XP understands that the company's value is greater today than it expects it to be in the future, so it is worth sell today; (2) either because XP is in disagreement with Itaú, since Itaú will have several veto rights, it will appoint 2 members to the XP Board of Directors, as well as its CFO and the Fiscal Council. In other words, it is "influence as far as the eye can see" for a simple minority.

The Context
Physical money is still the primary means of payment around the world. Commercial bank money brings security, allows remote transactions and access to other financial services. However, for the population of emerging countries and developing economies, this type of service is not very accessible. The "unbanking" live far from bank branches and the cost of these services is very high (NASCIMENTO, 2020).
The term "unbanking" refers to something quite common on the world finance scene. The World Bank stipulated that in 2011 there were 2.5 billion "unbanked" people in the world. "Desbancarização" is the flight of clients from traditional banks, also called large banks. Still "de-banking" is a practice that banks perform when closing accounts with customers considered "high risk", minimizing their own exposure to risk. In 2017, with the emergence of fintechs -startups in the financial services area -the number dropped to 1.7 billion people. In Brazil, IBGE estimated 60 million "unbanked" people, almost half of the economically active population -110 million. But with a high volume of transactions, classes B and C, previously neglected for failing to prove income, become a new market to be conquered. (OLD, 2019).
On the other hand, the chief economist of Itaú Unibanco, Mario Mesquita, points out that a possible increase in "desbancarização", in the case of a new CPMF, may occur. This is because people would look for new forms of payment, even those without supervision (PASSARO, 2019).
Initially, XP started a major media campaign encouraging Brazilians to migrate applications from large banks to independent investment companies with the aim of increasing portfolio profitability. For Roberto Lee, XP's marketing director, the "desbancarização" of investments -that is, the exchange of bad and expensive financial applications distributed by large retail banks for good financial products distributed by independent investment companies is far from being a novelty. In the 2000s, investors switched from large banks to independent brokers due to features and services such as a home broker that does not go offline, analyst reports, graphics, news and investment advice. What XP wants now "is to lead the "desbancarização" movement of the entire investment portfolio", not just the movement for the stock market as before. (SANDRINI, 2015).
Guilherme Benchimol, from XP, 36, from Rio de Janeiro, discovered in practice how education is the basis of prosperity. In 2002, he and his partner, Marcelo Maisonnave, 37, from Rio Grande do Sul, realized that many people stopped investing in stocks because they did not understand how the financial market works (FRANÇA, 2013). In Brazil, the most important transaction involving a large bank and a broker was Ágora in 2008. At that time, Bradesco disbursed R $ 830 million for Ágora Corretora. A value corresponding to 10.53% of the Bank's Profit in 2008, which had been 7.2 billion Brazilian reais. At the time of that transaction, Ágora was making 39 million Brazilian reais, so the price / profit ratio of the transaction was 21.3 times. The purchase price for each customer was 28.60 Brazilian reais per customer.
In 2016, Marcelo ended his share in society and in 2017, one year after the end of the term provided for by the non-competition clause, Maisonnave is back on the Brazilian market with a deal that promises to simplify the way of investing. In partnership with other executives from XP, the entrepreneur launched Warren in Brazil, a system that manages investments in an automated way. "I wanted a solution that could serve people like my mother's friends, who always asked me for help to invest the money," jokes Maisonnave. Although in the same segment, Maisonnave's proposal is different: Instead of products, "we sell an objective, an investment port-  (LUZ, 2017). Over the years, Benchimol has developed a peculiar style of management. He defines himself as an "intense person", something that, for those who worked with him, overflows in a difficulty of sharing decisions.
"Guilherme was born to be an owner, not to be a partner", says a former partner (FILGUEIRAS, 2016).
It has more than 660 offices of accredited agents in 25 states. 2 offices in the USA and 2 in Europe. The XP group's ownership is divided between XP Controle, which holds the majority of the shares, and GA. Benchimol will try to balance itself between what it calls Itaú's "seal of quality" and its open war with big banks, which includes stealing Itaú clients -about 30% of the R $ 5 billion that the brokerage captures each month comes from its new shareholder. In his words, the operation comes down to having "the freedom of always" and "their seal". (AGOSTINI, 2017).

The Transaction
A total of 239 XP partners and associates will sell 37.4% of their shares to Itaú, jointly pocketing approximately 2.26 billion Brazilian reais. They are all part of XP Controle, the holding company of the company's individual partners and which represents the partnership. Most of the 239 names on the list are associated, who own a fraction of the capital. In any case, in many cases, the operation will put a few million in the executive's pocket. The sale to Itaú boosted the immediate generation of wealth, when compared to the effect that the initial offering of shares would have. In theory, Itaú Unibanco becomes only a minority shareholder of XP Investimentos, without interference in the conduct of day-to-day business. In this context, the operation would not generate direct advantages for the investor, as he could continue using XP normally, in the same model currently available (CALAZANS, 2017).
However, at the time of the official announcement of the purchase, the bank signaled that it has the purpose of acquiring control of XP while the agreement allows. This may occur, initially in 2020, with an additional purchase of an additional 12.50% of the share capital (without voting rights) and reaching 74.90% of XP's total share capital in 2022. In 2024, XP could fact exercising the 100% selling power of the company to Itaú and, in 2033, Itaú would have the right to purchase 100% of XP. (LIS, 2018).  In addition to this restriction, the Bank has committed itself not to appoint executives for the financial and operations areas, nor to have access for 15 years to XP's customer base and service providers. (NAPOLITANO, 2018). But the discussion in this case is about the strategies in making the purchase and sale decision. Benchimol outlined a strategy to grow 700% in just three years -reaching the mark of 4 thousand customers -and move from 126 billion Brazilian reais in custody to the 1 trillion Brazilian reais mark. Today, the company has 1,100 people on its team and will reach 1,500 by December. In 2017, it grew 92%. In May, the broker will transfer its office to a space of 12 thousand square meters, more than double the current (DYNIEWICZ, 2018).
On the other hand, "not everything is flowers". For Luis Miguel Santacreu, of Austin Rating, a Brazilian risk rating agency, the advancement of other independent brokers may also harm the XP project. "Her model is being copied. Before, she used to swim alone. XP has been growing at a favorable rate but perpetuating this is very optimistic." (DYNIEWICZ, 2018). The Benchimol project is quite "audacious", but it does not consider it impossible. "Interest rates are favorable, but it will depend on how much the market as a whole will be able to grow," commented the innovation director at consulting firm Accenture, Guilherme Horn (DYNIEWICZ, 2018). Teaching Notes

DATA SOURCES
The teaching case was constructed with data sources of secondary origin.
The construction of the company's historical plot and the description of the people involved in the case were obtained through articles from national and international magazines, digital magazines, internet pages and website of the respective companies that make up the case.
The data and information presented in the case history part are real. The col-

TEACHING OBJECTIVES
• Provide knowledge about the governance structure and the theory of transaction costs in light of the partial acquisition of XP Investimento by Itaú Unibanco, in the technological innovation scenario of the Brazilian financial market.
• Develop a critical view to decide -the purchase of brokerage operations -especially in the difficulty of developing internally due to the high specificity of the asset.
• Understand the illustrated economic scenario, based on the current migration to technological innovation and the "desbancarização" environment.

TEACHING PLAN
This teaching case can be used for discussion in undergraduate, MBA, master and doctorate courses, both academic and professional, in Administration and Management, especially in disciplines related to finance, capital markets and strategy. Students are invited to take the place, on the one hand, of the company XP, which sold 49.9% of its share capital, and on the other hand, of Itaú Unibanco, the buyer of this slice. We recommend that, before starting Step 3 (Figure 7), read the data sources in full and the works in references.

Figure 7
Suggested lesson plan.
Step Alternatively, we also suggest that the recommended questions be prepared in small groups (assignment questions) different from the questions that guide the discussion in plenary (discussion questions). This form of preparation in small groups should serve to deepen the participants' understanding of the case without anticipating the articulation of the case with the theory. It is expected that the articulation of the case with the theory will be facilitated by the professor at the time of the discussion, where the specific question is also debated at this time: Wouldn't the largest bank in Brazil be able to develop such skills acquired from the brokerage?
Are XP's internalized capabilities so valuable?
Finally, we also suggest that the teacher presents transition questions, that is, in the midst of the proposed questions, discuss current issues, bringing to the

QUESTIONS PROPOSED FOR DISCUSSION
In this section, we present questions that can be used, following the educational objectives, to discuss the themes of the governance structure and the theory of transaction costs.

Question 1.
Ronald Coase's (1937) article was the pioneer in the study of transaction costs, recognizing its existence beyond the costs of production -the industrial economy.
Coase's vision was deepened in later works (WILLIAMSON, 1981;1991). Williamson (1981) understands that a transaction is the transfer of a good or service from one activity to another, guided by a separate technological base.
In practice, for Coase (1937), at a given moment there is an equal cost of carrying out transactions via the market and carrying out internally. This happens as the size of the company grows. The decision between internalizing and making the market is related to the transaction costs involved in the specificity of the assets. Also, in the amount of value that is lost when using an active asset that is not specific. For Williamson (1981), high economic performance would be obtained by the ability to adapt the company's activities efficiently, bypassing uncertainty. Uncertainty is an uncalculated risk, difficult to predict. As a result, transactions become more costly. Thus, within the understanding that the organization itself is complex and that the agents involved in the transactions have cognitive limitations, it is understood that the economic exchange must be mediated by a contract.

Question 2.
The governance structure is the unit where the transaction costs represented by the hierarchy reside (WILLIAMSON, 1981) (when the specificity of the assets is high, and the firm opts for its production instead of purchase). The transaction costs economics holds that saving transaction costs is the main process by which to think about a means to save in limited rationality and mitigate the risks that accumulate to opportunism. And governance is a means by which to generate order in a relationship where the potential for conflict threatens to undo or varied opportunities to realize mutual gains. (WILLIAMSON, 1999).
Three basic taxes define the transaction: i) frequency, ii) uncertainty and iii) specificity assets specificity involved. The assets specificity is the main element, the one that will determine whether the activity will be required by the market or carried out by the firm. As resources become more and more specialized, the economic choice of governance shifts from markets to hybrids and hierarchies (ARGYRES; MAHONEY; NICKERSON, 2019), with long-term contracts. The converse is when assets with less specificity can be managed to market. The theory of transaction costs connects the protection of opportunistic behavior to the adoption of governance mechanisms, therefore, the greater the specificity of assets -the greater the chance of opportunistic behavior -the closer the form of governance is to payment, also called verticalization (RODRÍGUEZ-LOPES; DIZ-COMESAÑA, 2016). The pur-the governance structure of the specificity of assets to market is benefited by the minimum amount of specific assets between the parties. On the other hand, hierarchical structures are favorable for use when there is a high specificity of assets. (WILLIAMSON, 1981).
Finally, market failures (opportunism and limited rationality) associated with complete and asymmetric information, as well as imperfect markets, are aspects that affect transaction costs, in this sense, a company to decide on the level of internalization of production processes, a way to establish your "governance structure" (PEREIRA; LOPES, 2018).

Question 3.
Itaú's acquisition of XP, in part, was based on the threat that "desbancarização", that is, that financial transactions will increasingly take place outside the banking system, which could be the next major trend in the financial sector, and with that the bank's business could be severely penalized. Perhaps I did not believe in the "desbancarização" thesis so much. XP realized that it is better to offer a full range of banking services than just brokerage services (LAI; GALDI, 2017).
Not all companies can be equally competent in implementing their institutional capabilities to protect their knowledge. For the theory of transaction cost economics, economic agents can look ahead and recognize contractual risks and investment opportunities (WILLIAMSON, 1999).
Even before Coase's initial studies, the price system prevailed, which regulated the production and consumption of goods by determining value, in the conception that: the price reflected everything. However, the flawed point is that when the price is set, the buyer and seller have no defined information. If the company outsources, it will lose what it had internalized, and it could be a competitive advantage for it beyond a market barrier for that technology or resource.

Question 4.
Companies that increase in size throughout their life trajectory face greater difficulties (transaction costs) to coordinate activities that are farther from their plant. On the other hand, innovations, such as improvements in communications, make it possible to reduce these management costs of this distance and thus, allow the company to continuously move forward with its expansion projects. (COASE, 1937).
The interests behind the large acquisition operation are, especially, for Itaú: it gains access to the 2,000 investment advisers in more than 660 offices accredited by the broker. In addition, XP's control may pass on integrity to Itaú. In 2024, XP may fully sell its stake in the brokerage. If not, in 2033, Itaú may purchase all XP shares (KAHIL, 2017).
As for XP: it is strategic, it will kill the competition. Although, Bradesco, supposedly, would also kill the competition when buying Ágora, at the time, Ágora was much bigger than XP. If you take one competitor out of the game, another one is born in place if, in fact, there is a market space to be filled", says Felipe Miranda, chief strategist at Empiricus Research (KAHIL, 2017). XP's strategy was perfect. The purchase by Itaú shows how coherent and aggressive marketing can scare even a financial giant the size of Itaú, which is reminiscent of a German saying: Fear makes the wolf seem bigger than it really is (LAI; GALDI, 2017). Although some brokers have improved their financial education programs, these institutions are not a symbol of strength for investors. Traditional banks still represent an image of security and trust. The transaction also takes place with this prerogative, given that XP, uniting in partnership with Itaú, takes the image and solidity of the large bank as a "tray".

CLOSURE OF THE CASE DISCUSSION
As a suggestion for ending the discussion of the case, there is the proposition of a challenging situation. Bring in plenary the other mergers and acquisitions that occurred in the Brazilian scenario in the last five years, in the sector. Also, filtering by the ones that most reverberated in history, making an analysis of the point of view, of the acquiring companies or that merged, on their decision making of these acts.
Also, to raise the new treatments given and generated strategies, with the opening of the capital of XP in the American stock exchange (NASDAQ). Also, whether the bank had not made the purchase, or had backed down after any of the obstacles between CADE and the Central Bank, would XP have concluded its intention to carry out the IPO on the Brazilian stock exchange (B3)? There would be another competitor interested in its acquisition.
In a teaching case, there are no single correct answers, but the most appropriate answers that can lead to a better decision. Certainly, closing the case with a new and challenging situation can encourage students to think more about the topic outside the classroom.