Via Financial Times

Intesa Sanpaolo, Italy’s biggest domestic lender, has launched a €4.86bn ($5.26bn) takeover bid for its rival UBI Banca in an audacious attempt to kick-start consolidation in Italy’s fragmented banking sector.

Just before midnight on Monday local time, Turin-headquartered Intesa unveiled an all-share offer to buy Italy’s fourth-biggest lender through a series of notices detailing its plans to issue new shares to fund the deal.

If successful, the combination would create the seventh-largest bank in the eurozone with €1.1tn in assets and give Intesa an additional 3m retail, small business and private-banking clients, the company said.

Intesa has offered to pay 17 new shares for every 10 UBI Banca shares tendered. It said the bid corresponds to a value of €4.25 per share in UBI Banca, or a 27.6 per cent premium to the Bergamo-based lender’s share price at the end of last week. 

Shares in UBI Banca, which climbed 5.5 per cent on Monday, surged a further 28 per cent in early trading on Tuesday. Intesa shares were up 3 per cent on Tuesday, giving the bank a market value of €46bn.

“Intesa considers UBI amongst the best Italian banks . . . [it] has local entrenchment in the most dynamic regions of the country, enjoys outstanding results that have been achieved thanks to the excellent job of both its CEO and its management team, and has a sound business plan,” the lender said in a statement. 

The bid makes Intesa chief executive Carlo Messina the first to act decisively among the country’s largest lenders, responding to supervisors’ repeated appeals for Italian banks to consolidate to reduce excessive competition, cut costs and boost the sector’s persistently low profitability. 

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The country’s banks have been on the front line of tensions between Italy and Europe, not only over bad loans during the European debt crisis but also over its expansionary budget. Investor concerns over the package caused spreads on sovereign debt to balloon in 2018, reviving fears of a vicious cycle between banks and the sovereign, known colloquially as a “doom loop”.

Intesa will have to get permission from the European Central Bank for the deal to go ahead, and negotiate with the Italian government and unions over 5,000 jobs reductions it plans as part of the deal. The acquirer forecasts the deal could lead to €730m in annual expense and revenue synergies, but will cost €1.3bn before tax to execute.

To address competition concerns, Intena said its offer includes a binding agreement to sell between 400 and 500 branches of the combined group to Modena-based BPER Banca.

More than a decade on from the 2008-09 financial crisis, most banks across continental Europe are still battling to revive returns amid a raft of new capital regulations and misconduct fines. The vast majority trade at a significant discount to the book value of their assets, but despite this there have been relatively few transformational deals.

Executives have become increasingly vocal about the need for consolidation after the already struggling sector was dealt a further blow when the ECB cut interest rates further into negative territory for the foreseeable future, shrinking already small margins on lending.

While keen on domestic deals, Mr Messina has been a vocal critic of cross-border European consolidation in contrast to his counterpart at Milan-based rival UniCredit, Jean Pierre Mustier. The Frenchman has explored deals with France’s Société Générale and Germany’s Commerzbank, the Financial Times has previously reported.

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In the past UBI held takeover talks with Banca Popolare di Milano and Banco Popolare, before its two other rivals merged in 2016, the FT reported at the time.