Andrea Orcel, Chief Executive Officer of Unicredit, Thursday, November 23, 2023, London, UK.
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Analysts say political turmoil has stalled a deal with Germany’s Commerzbank, while UniCredit’s Andrea Orcel is divided between two takeover talks, leading to Italy’s Banco BPM. There is still room to soften the acquisition proposal.
Orcel, who was once the architect of the controversial 2007 takeover and subsequent demerger of Dutch bank ABN AMRO, announced a surprise stake increase in Commerzbank in September and reconsidered his cross-border integration ambitions. did. The latter had until recently been the subject of speculation as a potential merger partner for Germany’s largest financial institution, Deutsche Bank.
Amid resistance from the German government and turmoil in Chancellor Olaf Scholz’s coalition government, UniCredit also turned its attention to Banco BPM last month, offering 10 billion euros ($10.5 billion) to the Italian peer on “unusual terms.” It is said that it has been proposed. It does not reflect profitability or growth potential.
In the process, Mr. Orcel raised eyebrows in the Italian government, with Economy Minister Giancarlo Giorgetti warning that “the safest way to lose a war is to fight on two fronts,” according to Italian news agency Ansa.
Analysts said the rejected UniCredit – whose CET1 ratio, which reflects banks’ financial strength and resilience, was above 16% in the first three quarters of this year – could still improve its domestic bid. states.
“There is room for growth.” [Banco BPM] It’s an offer,” Morningstar senior equity analyst Johan Scholz told CNBC.
But he warned that there was “limited” scope to do so. “Please think about 10% or more.” [increase]which would likely dilute shareholder returns. ”
UniCredit’s original proposal was for an all-stock deal to merge two of Italy’s largest financial firms, but the offer was just 6.657 euros per share.
Scholz and Federated Hermes senior credit analyst Filippo Aroatti said UniCredit could sweeten the offer by adding a cash component.
“Remember, this is Orcel’s second takeover attempt.” [Banco] BPM…I don’t think there will be a third time. I think one of them will close. [the deal] Now or perhaps he is walking. Orcel last month recognized Banco BPM as a “historic goal”, fueling a firestorm of media reports that UniCredit had previously sought to form a national union in 2022.
Italy’s The stage was set for M&A activity early last month, when Roma sought to reduce its stake. At a bank that was bailed out.
Critically, Scholz said UniCredit’s proposal “ [Banco] “BPM has found itself in a difficult position,” it said, triggering passivity rules that prevent actions that could block bids without shareholder approval, and Banco BPM itself in early November announcing a deal with fund manager Anima Holding. This could thwart the company’s ambitions to take control. % of Monte dei Paschi’s shares.
attack and defense
A combined offensive could be UniCredit’s best defense in an easing interest rate environment.
UniCredit received a long-term debt rating of BBB+ from Fitch Ratings in October, higher than Italian government bonds, due to its “long-term, multi-year restructuring, balance sheet de-risking and significant improvement in loss-absorbing capacity.”
However, financial institutions now have to deal with an environment of accommodative monetary policy, in which they have a “relatively limited presence in asset management and over-the-counter sales, making them more susceptible to interest rate fluctuations.” Scope Ratings analyst Alessandro Boratti wrote last month.
Both potential acquisitions avoid some of that risk. Germany’s Commerzbank consortium, operated by UniCredit through its Hypofeleinsbank unit, could create synergies in capital markets, advisory, payments and trade finance activities, JPMorgan analysts suggested in a November note. did. He added that such a partnership would create a “limited” funding advantage as the two banks’ spreads are already close.
Closer to home, Scholz points out that Banco BPM offers complementary strengths in asset management. Mr Alloatti said the absorption of domestic peers was also one of the only options left for Italian lenders to play a leading role on the national stage.
“There’s really not much they can buy in Italy. [Italy’s largest bank] Intesa. Probably Banco BPM…that’s why they looked at it in the past,” Alloatti said. “Banco BPM is the only bank they could potentially buy to get a little bit closer to Intesa.” Intesa Sanpaolo is now It is Italy’s largest bank by total assets.
KBW analyst Hugo Cruz told CNBC that approaching Banco BPM also has the “added value” of letting German shareholders know that there are other M&A options available to UniCredit. He said in an emailed comment. Still, he stressed that the domestic acquisition bid was likely to be “mainly a reaction to the acceleration of the consolidation process in the Italian banking system”, triggered by Banco BPM’s acquisition of the Monte dei Paschi interest.
Orcel may have to decide whether to expand significantly overseas or stay at home, and analysts say UniCredit’s attempt to absorb both acquisition targets would result in high integration costs and significant management time. It has been pointed out that this poses a financial burden.
KBW’s Cruz said the Italian financial institution, which posted 15 consecutive quarters of growth this fall and whose stock price has risen about 61% year-to-date, could ultimately choose to act alone. Ta.
“I don’t think Mr. Orcel needs to do bank acquisitions. He has already said that any acquisitions need to be more value-added compared to bank acquisitions.” [UniCredit]”In the absence of an acquisition, the bank would continue with the same strategy, which already includes a high level of capital distribution to shareholders and aims to utilize surplus capital by the end of 2027,” he said. An Italian financier said: had previously withdrawn from the bid “because it was still undergoing restructuring and did not have the acquisition currency.”
Morningstar’s Scholz added: “We hope both companies have the discipline to exit either transaction” if it doesn’t result in a return for shareholders.
