Banking risk, Intesa San Paolo’s countermove on MPS

The Italian banking risk it came back on within a few hours. Sunday Bpm Bank broke the deadlock by formally proposing to Banca Monte dei Paschi di Siena an agreed aggregation intended to create the second largest Italian banking group for customer financing and deposits. The counter-offensive arrived during the night Intesa Sanpaolo. The board of directors of Ca’ de Sass met urgently and this morning gave the green light to aTotalitarian voluntary takeover bid on MPS for approximately 30.6 billion euros, accompanied by an agreement with Unipol for the sale of a bank with the Monte dei Paschi brand and 635 branches.

The first move was to Bpm Bank. The board of directors of the Piazza Meda institute unanimously decided to send MPS a communication expressing its interest in starting a discussion to discuss and agree on an aggregation operation. In the vision of Banco Bpm, the combination should be carried out according to the formula of merger of equalswith a governance “based on criteria of balance and representativeness” and the safeguarding “of the respective brands, historical locations and territorial roots”.

The operation outlined by Banco Bpm aims to create a group with a market capitalization of more than 50 billion euros, including the value of synergies, and with a significant strengthening of its positioning on the capital market. The new group would become the first operator in terms of number of branches in Lombardy, Tuscany and Veneto and could benefit from the complementarity between the product factories of the two banks and those attributable to the hub Mps-Mediobanca.

Synergies and value creation

On an economic level, Banco Bpm estimates recurring synergies exceeding 1.1 billion euros gross per year, made up of over 650 million cost synergies and over 450 million revenue synergies. The bank also expects value creation of at least 5.5 billion euros net of integration costs estimated at approximately 1.1 billion euros gross. In the document released to the market, the institute also indicates a “potential generation of net profit of approximately 6 billion euros”, with double-digit earnings per share growth and a distribution capacity higher than that envisaged in the stand-alone plans of the two banks. Among the elements valorised by Banco Bpm there is also the stake held by Monte dei Paschi in Generali. According to the institute, the “decisive relevance” of the share would allow it to broaden the scope of strategic options available to the resulting group.

Intesa Sanpaolo’s counteroffensive

The reaction was not long in coming. On Sunday evening the board of directors of Intesa Sanpaolo met to examine a possible alternative operation and this morning announced the launch of aTotalitarian voluntary takeover bid on Monte dei Paschi. The offer values ​​each Mps share at 10.091 euros, through a consideration made up of 1.6 newly issued Intesa Sanpaolo shares and one euro in cash. The premium is equal to 12.5% ​​compared to the official price of 5 June and 17.4% compared to the weighted average of the last three months. The operation proposed by Intesa has an extremely significant dimension. According to the bank led by Carlo Messina, the combination would create the second listed banking group in the Eurozone by market capitalization, equal to approximately 126 billion euros. The group could count on approximately 20 million customers in Italy, customer financial assets of approximately 1,700 billion euros and consolidated profits exceeding 16 billion euros in 2029.

The synergies estimated by Intesa

The esteemed synergy from Intesa they reach approximately 2.9 billion euros before taxes per year when fully operational from 2029, of which 1.5 billion deriving from cost synergies and 1.4 billion from revenue synergies. One-off integration costs are estimated at approximately €2.1 billion before taxes.

The role of Mediobanca and Unipol

A central element of the project concerns Mediobanca. In the event of a successful takeover bid, Intesa would indirectly acquire the 86.348% stake held by Monte dei Paschi in the Piazzetta Cuccia institute. At the same time as the offer, Intesa entered into a binding agreement with Unipol Insurance. The agreement provides for the insurance group to acquire a bank operating under the Monte dei Paschi brand made up of 635 branches and most of the central structures necessary to operate autonomously. The agreement, defined by the bank as “functional to proactively manage antitrust issues” and of an “industrial nature”, represents one of the pillars of the operation. As part of the offer on MPS, Intesa’s board of directors also approved the purchase of 3.01% of Generali and the signing of a derivative hedging contract on the same shareholding. According to the bank, the operation “has a purely financial nature”, “has a temporary duration” and is functional to maintaining, after the completion of the offer, the accounting treatment currently reserved for Mediobanca’s participation in Generali according to the equity method.

Challenge for control of MPS

In the space of twenty-four hours, Monte dei Paschi has thus become the center of a competition involving three of the main groups of the Italian financial system. On the one hand, Banco Bpm proposes a merger agreed between equals to create a new national champion with a capitalization of over 50 billion; on the other hand, Intesa is aiming directly at control of the Sienese institution through a takeover bid worth around 30.6 billion, with the declared aim of building one of the main European financial players.