Italy May Get Special UniCredit Shares in Monte Paschi Deal

(Bloomberg) -- The Italian government may receive UniCredit SpA shares without voting rights as part of a possible takeover by the lender of nationalized Banca Monte dei Paschi di Siena Spa.

UniCredit and the government are reviewing options to preserve the balance of voting rights if the state receives a stake in the lender as part of a transaction, according to people familiar with the matter. A suspension of voting rights or issuance of UniCredit stock carrying only economic rights are the most likely options, the people said, asking not to be named because the discussions aren’t public.

Following a long period of informal negotiations, UniCredit said last month it has entered exclusive talks to buy Monte Paschi, the world oldest lender, which was first bailed out in 2009. After two state rescues and more than 8 billion euros of public money, the lender is still struggling to restore profitability while the government is seeking to exit its investment by a year-end deadline set by the European Union.

Italian Finance Minister Daniele Franco said last week that the Treasury could receive shares of UniCredit as part of the deal without seeking to alter the governance of the bank, Italy’s second-largest.

While receiving UniCredit stock is the preferred option at this stage of talks, the issuance of bonds that have the option of converting into UniCredit shares is seen as an alternative, the people said.

What Bloomberg Intelligence says:

UniCredit could generate EPS accretion of nearly 20% in a Monte Paschi deal, based on our analysis, though there’s still little clarity on the deal’s scope and structure. UniCredit’s capital-neutral objective implies the need for a potential 2 billion-euro equity strengthening, the mechanics of which are another key unknown.

-- Georgi Gunchev, banking analyst

-- To read the research, click here.

Talks are at an early stage and detailed arrangements will be analyzed only after the ongoing due diligence, the people said. Spokespeople for UniCredit, Monte Paschi and the finance ministry declined to comment.

While a sale to UniCredit would be Italy’s favored solution for the long-troubled lender, meeting the conditions already set by Chief Executive Officer Andrea Orcel could have a price tag of up to 10 billion euros ($11.7 billion) for taxpayers. Prime Minister Mario Draghi’s government is seeking a sizable payback in the deal.

Orcel, who took over as chief executive earlier this year, has made a deal conditional on the transaction being neutral for UniCredit’s capital, the exclusion of Paschi’s bad loans and all extraordinary litigation, as well as adequate protection from other potential credit risks. The Treasury has already agreed on these conditions.

Addressing lawmakers last week, Franco confirmed UniCredit has entered Monte Paschi’s data room, and that staff will have 40 days to examine its books.

“It is premature to discuss any governance implications or any deal structure,” Orcel said on July 30. “I believe we know pretty clearly what the views of the market and the views of our shareholders are, and we’re committed to delivering a deal that fulfills those expectations in all aspects.”

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