Intesa’s Midnight Raid on UBI May Spur Italian Bank Mergers

(Bloomberg) -- Intesa Sanpaolo SpA made an unsolicited 4.9 billion-euro ($5.3 billion) offer for its smaller rival Unione di Banche Italiane SpA in a midnight raid that’s likely to trigger further consolidation among Italy’s struggling banks.

Intesa Chief Executive Officer Carlo Messina, pouncing before the government could strongarm banks into unwanted combinations, launched an all-stock bid at a premium of more than 28% to UBI’s price Monday. Shares of the target institution soared, leading a rally in Italian financial stocks.

“We consider this deal to be a unique opportunity to create a European leader that leverages on a strong Italian footprint,” Messina said Tuesday on a conference call with analysts.

Italy’s banks have been looking for ways to expand after a decade spent weeding out bad debts in the aftermath of the financial crisis, and the government has been eager to forge an industry capable of taking on European giants.

Until Messina’s move, though, all this amounted mostly to talk. The European Central Bank, meanwhile, reacted positively to word of the impending bid, according to people familiar with the matter who asked not to be named discussing a confidential issue.

The deal would be the biggest European banking acquisition in more than 10 years, according to data compiled by Bloomberg. UBI investors will get 17 new shares of Intesa for every 10 shares they hold under the plan announced at midnight on Monday. That values UBI at about 4.25 euros a share, Intesa said.

For UBI’s board and the bank’s biggest shareholders, the deal came out of nowhere. CEO Victor Massiah heard of it late Monday evening, when he landed in London to meet with investors after presenting a three-year plan in Milan. He headed back to Milan, and his board plans to meet Wednesday morning, people familiar with the matter said.

Holiday Plan

Messina and Intesa’s adviser, Mediobanca SpA, hatched the outline during the Christmas break, according to people familiar with the matter, and planning accelerated during January. The CEO said he called Italy’s finance minister about the deal at midnight.

“I’m convinced that we are the first but in the European banking system, it will be the big players that will start” the consolidation process, Messina said at a press conference in Milan. “Those are the ones that have the capability to consolidate. It’s hard to imagine mergers of equals for European banks.”

The CEO said he had “no idea” whether rival UniCredit SpA would make a counter-bid for UBI. He also said that he talked to Massiah after Intesa’s board meeting and the UBI CEO could join the combined company’s top management.

When the transaction was announced close to midnight Monday, it looked meticulously prepared: Part of it involves selling to BPER Banca 400 to 500 branches jointly operated by the two banks. BPER will call an extraordinary meeting to approve a 1 billion-euro rights offer to fund that transaction, underwritten by Mediobanca. BPER shares dropped as much as 11%, the most since August 2016.

UBI was trading at 4.29 euros at 4:52 p.m. in Milan, just above the bid price. Intesa gained 1.8%, as most Italian banks jumped on news of the bid. A UBI bond callable in January 2025 also climbed.

Until this point, Italian banking looked set for another slow year for deals: executives spoke of the need for consolidation but shied away from taking the plunge. The benefits of increasing scale and synergies were weighed against regulatory hurdles, Italy’s weak economic prospects and execution risks.

“The bid is very appealing for both ISP and UBI shareholders, as it would create a massive player in Italy, especially in the north, with very high efficiency levels and competitive product companies,” said Stefano Girola, a portfolio manager at Alicanto Capital SGR in Milan.

The combination would form a European lender with 8.7 billion euros in net interest income and almost 1 trillion euros in total assets. Combined profit amounts to 21.6 billion euros, based on 2019 financial data.

The similarity of the banks “means that there is scope for integration and efficiency gains,” said Ignazio Angeloni, a former member of the ECB’s supervisory board. “These, though, will only come with deep restructuring, and we know that radical cost cuts are not easy to implement in Italy,” he said.

European policy makers and executives have consistently emphasized the need for bank mergers to challenge the U.S. giants that have grabbed market share since the 2009 crisis. Right across the EU, however, little has happened.

Obstacles to cross-border deals include the lack of a common deposit-insurance program and a fragmented capital market. German Finance Minister Olaf Scholz last year called for such an insurance system across the region, enabling enlarged banks to take deposits from one market and lend in another.

In Italy, mid-sized banks in particular are still struggling to cope with the aftermath of the crisis, and while non-performing loans have declined and valuations are rebounding, profitability is far from strong.

Banco BPM SpA and Banca Monte dei Paschi di Siena SpA, as well as BPER, have often featured as both potential targets and buyers in the Italian press.

Investors and analysts have long expected that the Italian government’s impending sale of its majority stake in Monte Paschi, acquired in a 2017 bailout, would be the trigger for a round of domestic deals. A history of the state and the central bank pressuring stronger lenders to help failing ones has prompted concern that banks may be pushed into playing a role in Monte Paschi’s sale.

The European Commission expects the Italian Treasury to exit the bank by 2021, though exactly how that will happen hasn’t been determined.

--With assistance from Chiara Remondini, Marco Bertacche, Jerrold Colten, Dan Liefgreen, Alessandro Speciale and Jan-Henrik Förster.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;Tommaso Ebhardt in Milan at tebhardt@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Paul Sillitoe, Ross Larsen

©2020 Bloomberg L.P.