UniCredit’s Orcel could still sweeten his bid and take on a double M&A offensive

Divided between two courted catches, UniCreditAndrea Orcel still has room to sweeten the Italian offering BPM Bankanalysts say, while political turmoil stalls a deal with Germany Commerzbank.

At a time when he was a key architect of the controversial 2007 takeover and subsequent dissolution of Dutch bank ABN Amro, Orcel revised his cross-border consolidation plans with the September announcement. building unexpected participation at Commerzbank. Until recently, the latter was the subject of speculation as a potential merger with Germany’s largest lender, Deutsche Bank.

Amid resistance from the German government — and confusion in Chancellor Olaf Scholz’s governing coalition — UniCredit also set its sights on Banco BPM last month, A sacrifice of 10 billion euros ($10.5 billion). He said the Italian had issued it under “unusual conditions” and that it does not reflect its profitability and growth potential.

Along the way, Orcel drew flak from the Italian administration, and Economy Minister Giancarlo Giorgetti warned that “the surest way to lose a war is to fight on two fronts.” According to the Italian news agency Ansa.

Analysts say marginalized UniCredit – whose CET1 ratio, reflecting the bank’s financial strength and resilience, was above 16% in the first three quarters of this year – could still improve its domestic offering.

“There is room for (Banco BPM) to increase the offer,” Johann Scholtz, senior equity analyst at Morningstar, told CNBC.

However, he warns that the space for this is “limited”. “Think more than 10% (increase), you’re probably diluting shareholder earnings.”

UniCredit’s initial proposal was an all-share deal that would have merged one of Italy’s two biggest lenders, but it offered just 6,657 euros per share.

Bi Scholtz and Filippo Alloatti, senior credit analyst at Federated Hermes, said UniCredit could sweeten the proposal by taking on a cash component.

“Remember, this is the second attempt by Orcel (Banco) to buy BPM… I don’t think there will be a third attempt. I think they either close (the deal) now, or they probably walk away. So I think a cash component could be on the table “, Alloatti told CNBC. Orcel last month labeled Banco BPM as a “historic destination”, sparking media fire that UniCredit had sought an early merger in 2022.

Italy’s stage was set for M&A activity early last month, after Banco BPM acquired a 5% stake in Monte dei Paschi – the world’s oldest lender and a former takeover target for UniCredit until talks collapsed in 2021 – Rome’s when he wanted to reduce his participation. in the rescued bank.

Critically, Scholtz noted, UniCredit’s bid “puts (Banco) BPM in a difficult position,” triggering a passivity rule that prevents it from taking any action that could disrupt the bid without shareholder approval, and could stifle Banco BPM’s early November ambitions. to acquire Control of the fund manager Anima Holding, which also It has a 4% stake in Monte dei Paschi.

UniCredit was driven by “multi-year restructuring, balance sheet de-risking and significantly improved loss-absorbing capacity”. BBB+ long-term debt rating Fitch Ratings in October, above Italy sovereign bonds.

But the lender faces an environment of monetary policy loosening, where it is “exposed to changes in interest rates due to its relatively limited presence in asset management and bancassurance,” Alessandro Boratti, an analyst at Scope Ratings. he wrote last month.

Acquisition options hedge part of that exposure. A German Commerzbank syndicate, where UniCredit operates through its HypoVereinsbank division, could create synergies in capital markets, advisory, payments and trade finance activity, JPMorgan analysts said in a November note. They added that such a union would bring a “limited” advantage in financing, because the expansions of the two banks are already closely negotiated.

Closer to home, Scholtz notes, Banco BPM offers additional strength in asset management. Alloatti said absorbing a domestic counterpart is also one of the few remaining options for the Italian lender to take center stage on the domestic stage.

“There really isn’t much they can buy to bridge the gap in Italy (with Italy’s biggest bank). understanding. Probably Banco BPM … that’s why they looked at it in the past,” Alloatti said. “Banco BPM is the only bank they can buy to get a little closer to Intesa.” Intesa Sanpaolo is Italy’s largest bank by total assets.

Approaching Banco BPM, KBW analyst Hugo Cruz said in emailed comments to CNBC, it also has the “added value” of signaling to German shareholders that UniCredit has other M&A options available. However, he stressed that the internal takeover offer is “mainly a reaction to the acceleration of the consolidation process of the Italian banking system”, triggered by Banco BPM’s acquisition of Monte dei Paschi’s interest.

Orcel may have to decide whether to go abroad or stay at home, with analysts citing high integration costs and a high management time toll if UniCredit tries to absorb both of its acquisition targets.

After all, KBW’s Cruz said the Italian donor, which scored 15^th It has seen consecutive quarters of growth this fall and a roughly 61% increase in its share price year-to-date – it may choose to go solo.

“I don’t think Mr. Orcel should make a bank acquisition. He already stated that any acquisition will have to add value compared to (UniCredit’s) stand-alone strategy, and in the absence of an acquisition the bank will continue with the same strategy. There was already a high level of capital distribution to shareholders and the 2027 directed the use of excess capital to the end,” he said, noting that the Italian lender had previously refrained from bidding because “it was still under restructuring and did not acquisition currency”.

“We would expect them to have the discipline to walk away from both deals” if they don’t deliver a return for shareholders, Morningstar’s Scholtz added.