UniCredit’s Orcel could still lower its bid and pull off a double M&A attack

Split between two courtship takeovers, UniCreditAndrea Orcel’s still has a chance to give the Italian team a discount Banco BPMWhile political instability hinders a deal with Germany, analysts said Commercial bank.

Having been a key architect in the controversial 2007 takeover and subsequent breakup of Dutch bank ABN Amro, Orcel has revisited its cross-border consolidation ambitions with the announcement in September about one Build unexpected stakes at Commerzbank. Until recently, the latter company had been the subject of speculation as a potential merger partner for Germany’s largest lender, Deutsche Bank.

Amid opposition from the German government – and chaos within Prime Minister Olaf Scholz’s ruling coalition – UniCredit last month also set its sights on Banco BPM, with a Incentives of 10 billion euros ($10.5 billion) which the Italian company said was delivered under “irregular conditions” and did not reflect the company’s profitability or growth potential.

Along the way, Orcel raised eyebrows among Italian authorities when Economy Minister Giancarlo Giorgetti warned that “the safest way to lose a war is to fight on two fronts,” according to Italian news agency Ansa.

Analysts say that rejected UniCredit – whose CET1 ratio, which reflects a bank’s financial strength and resilience, stood above 16% in the first three quarters of this year – could still improve its bid in water.

“There is an opportunity to increase [Banco BPM] recommended,” Johann Scholtz, senior equity analyst and Morningstar, told CNBC.

However, he warned of a “limited” ability to do so. “Think 10% more [increase]you will likely reduce shareholder earnings.”

UniCredit’s initial proposal was an all-stock deal that would unite Italy’s two largest lenders, but offered just 6,657 euros per share.

Both Scholtz and Filippo Alloatti, senior credit analyst at Federated Hermes, said that UniCredit could sweeten the proposal by addressing the cash issue.

“Remember, this is Orcel’s second purchase [Banco] BPM… I don’t think there will be a third try. I think they either closed down [the deal] now, or perhaps he will walk. So I believe the cash component could be considered,” Alloatti told CNBC. Orcel last month considered Banco BPM a “historic target” – sparking media reports that UniCredit had previously sought seek a domestic alliance in 2022.

The Italian stage prepared 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 previous takeover target of UniCredit, until talks collapsed in 2021 – when Rome sought to reduce its stake in the bailed-out bank.

Importantly, Scholtz notes, UniCredit’s offer “puts [Banco] BPM finds itself in a difficult position,” triggering a passive rule that prevents BPM from taking any action that could hamper the bid without shareholder approval – and could stifle its early November ambitions Banco BPM itself to get control of fund manager Anima Holding, also owns 4% shares of Monte dei Paschi.

A consolidation attack could be UniCredit’s best defense in a falling interest rate environment.

“Multi-year restructuring, reduced balance sheet risk and significantly improved loss absorption capacity” has propelled UniCredit to its position Long-term debt rating BBB+ from Fitch Ratings in October, higher than Italy’s rating government bonds.

But lenders now face an easing monetary policy environment where they are “more vulnerable to changes in interest rates due to their relatively limited presence in asset management and bancassurance”. , said Alessandro Boratti, analyst at Scope Ratings. wrote last month.

Both takeover prospects hedge some of those risks. JPMorgan analysts signaled in a November report that an alliance with Commerzbank in Germany, where UniCredit operates through its HypoVereinsbank division, could create synergies in capital markets, advisory, payments and trade finance activities. They added that such an alliance would create a “limited” capital advantage, because of the price spread between two banks that already trade closely with each other.

Closer to home, Scholtz notes, Banco BPM offers additional strength in asset management. Alloatti believes that recruiting a domestic rival is also one of the Italian bank’s only remaining options to take on a leading role at home.

“They can’t really buy much in Italy to close the gap with [Italy’s largest bank] Intesa. Probably Banco BPM… that’s why they’ve looked at it in the past,” Alloatti said. “Banco BPM is the only bank they can buy to get closer to Intesa.” Intesa Sanpaolo is currently Italy’s largest bank by total assets.

Approaching Banco BPM, KBW Analyst Hugo Cruz told CNBC in emailed comments, there is also “added value” in signaling to German shareholders that UniCredit has other M&A options available. However, 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 the Monte interest my dei Paschi.

Orcel may need to decide between going big overseas or at home, with analysts pointing to high integration costs and a lot of management time if UniCredit tries to do both going forward. his manager.

Finally, KBW’s Cruz said, the Italian lender – made its 15th mark^th Back-to-back quarters of growth this fall and has seen its stock price rise about 61% on the year to date — could choose to stand alone.

“I don’t think Mr. Orcel has to do a bank acquisition. He has stated that any acquisition needs to add value in comparison [UniCredit]its stand-alone strategy and absent an acquisition, the bank will continue with the same strategy which has included high levels of capital allocation to shareholders and targeting the use of excess capital by the end of 2027,” he said. said, noting that the Italian lender dropped the bid earlier “because it was still being restructured and had no acquisition currency.”

“We expect that they will have the discipline to walk away from both deals” if they don’t generate profits for shareholders, Morningstar’s Scholtz added.