UniCredit’s Orcel could still raise bid and launch dual M&A offensive | Wilnesh News

Analysts say there is still room as UniCredit’s Andrea Orcel faces two takeover courtships despite political turmoil stalling deals with German banks Further increase the bid for Italian bank BPM. Commerzbank.

Orcel, who was a key architect of the controversial 2007 takeover of ABN AMRO and its subsequent breakup, announced in September a surprise increase in its stake in Commerzbank as he revisits his cross-border integration ambitions. Until recently, the latter had been the subject of speculation as a potential merger partner for Deutsche Bank, Germany’s largest bank.

UniCredit also turned its attention to Banco BPM last month with a 10 billion euro ($10.5 billion) offer amid a boycott by the German government and turmoil in Chancellor Olaf Scholz’s governing coalition. The Italian counterpart said the offer was delivered under “unusual conditions”.

In the process, Auxerre attracted the displeasure of the Italian government, with Economy Minister Giancarlo Giorgiotti warning that “the safest way to lose a war is to fight on two fronts.” According to Italian news agency ANSA.

Analysts said rejected UniCredit – whose CET1 ratio remained above 16% in the first three quarters of this year, reflecting the bank’s financial strength and resilience – could still boost its domestic offer.

“Banco BPM’s offer has room to grow,” Morningstar senior equity analyst Johann Scholtz told CNBC.

However, he warned that the scope for doing so was “limited.” “If it’s more than a 10% (increase), you could be diluting shareholder returns.”

UniCredit’s original proposal was an all-stock deal to merge Italy’s two largest banks, but it offered just 6.657 euros per share.

Both Scholz and Filippo Alloatti, senior credit analyst at Federated Hermes, said UniCredit could sweeten the offer by adding a cash component.

“Remember, this is Orcel’s second attempt to buy (Banco) BPM… I don’t think there will be a third attempt. I think either they get it done now or he might leave. So I believe the cash portion might It’s on the table,” Allodi told CNBC. Orcel last month called Banco BPM a “historic goal,” fueling media reports that UniCredit had previously sought to establish domestic unions in 2022.

Early last month, BPM Bank acquired a 5% stake in Monte dei Paschi (the world’s oldest bank and another former UniCredit takeover target) until negotiations broke down in 2021 (when Roma sought to reduce its stake), Italy The stage is set for M&A activity.

Crucially, Scholz noted, UniCredit’s offer “put BPM Bank in a difficult position”, triggering a passivity rule that prevents it from taking any action that might block the takeover without shareholder approval, and Could kill Banco BPM’s own early November ambitions get Control of fund management company Anima Holding, which also Owns 4% of Monte dei Paschi.

“Years of protracted restructuring, balance sheet de-risking and significantly improved loss-absorption capacity” have driven UniCredit towards BBB+ long-term debt rating October Fitch rating, higher than Italy rating sovereign bonds.

But the bank must now contend with an environment of loose monetary policy and “is more vulnerable to changes in interest rates due to its relatively limited presence in asset management and bancassurance,” Scope Ratings analyst Alessandro Bolatti (Alessandro Boratti) said. Written last month.

Both acquisition prospects hedge some of the risk. Analysts at JPMorgan said in a report in November that the Commerzbank alliance, in which UniCredit operates through its HypoVereinsbank unit, could create synergies across capital markets, advisory, payments and trade finance activities. They added that such an alliance would yield “limited” advantages in financing, as the two banks’ interest rate spreads are already very close.

Closer to home, Scholtz noted, Banco BPM has complementary strengths in asset management. Alotti said that absorbing domestic peers is also one of the only options for the Italian bank to play a leading role on the domestic stage.

“They really have nothing to buy in Italy to bridge the gap with (Italy’s largest bank) understand. Probably Banco BPM…that’s why they used to focus on it. .

KBW analyst Hugo Cruz told CNBC in emailed comments that exposure to Banco BPM would also have the “added value” of signaling to German shareholders that UniCredit has other M&A options available. Nonetheless, he stressed that the domestic takeover bid could be “mainly a reaction to the acceleration of the consolidation process in the Italian banking system”, triggered by Banco BPM’s acquisition of its Monte dei Paschi interest.

Orcel may need to choose between going overseas or staying at home, with analysts pointing out that integration costs would be high and management time would be significantly reduced if UniCredit tried to absorb both acquisition targets.

KBW’s Cruz said the Italian bank finished in 15th place.^th It had a straight quarter of growth this fall, and its shares are up about 61% year-to-date — with the option to go independent.

“I don’t think Mr. Orcel will have to pursue a bank acquisition. He has already stated that any acquisition would need to add value compared to UniCredit’s standalone strategy and that without the acquisition the bank would continue with the same strategy as UniCredit. Already included High level of capital allocation to shareholders, with the aim of using excess capital by the end of 2027,” he said, noting that the Italian bank had previously abandoned its bid “because it was still restructuring and had no acquisition currency”.

Morningstar’s Scholz added, “We hope they will have the discipline to walk away from both transactions” if they don’t deliver returns for shareholders.