UniCredit boss’ 3D chess M&A game could backfire
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add graphic.
By Liam Proud
LONDON, Nov 25 (Reuters Breakingviews) -Most bankers regard Andrea Orcel as a shrewd deal tactician. The UniCredit CRDI.MI CEO has made a second hostile M&A move in a few months. Yet his intricate M&A masterplan risks looking overcomplicated and desperate.
On Monday UniCredit, worth 60 billion euros, launched a surprise 10-billion-euro all-share offer for Italian mid-sized rival Banco BPM BAMI.MI. The virtually non-existent premium of 0.5% suggests an opening gambit to get talks moving. Orcel didn’t negotiate with BPM’s board beforehand because of their likely intransigence, according to a person familiar with the matter.
It sounds similar to the situation with 17-billion-euro German lender Commerzbank CBKG.DE, in which UniCredit snapped up a roughly one-fifth stake, including derivatives, in September. A possible takeover bid is on hold until after national elections scheduled for early 2025, not least because Orcel would need to hear greater enthusiasm from the next government. If UniCredit attempted a full deal, it would wait until after integrating BPM, Orcel said in a call with analysts on Monday.
Both deals work on paper. Orcel expects 2 billion euros of restructuring costs from buying BPM, or 1.4 billion euros after tax at 32%. Added to the purchase price, his total outlay based on the opening offer would be just over 11.4 billion euros.
In return, he’d hope for 1.2 billion euros of cost savings and revenue boosters, equivalent to 816 million euros after tax, plus BPM’s forecast 1.3 billion of earnings in 2027, using Visible Alpha consensus data. That adds up to 2.1 billion euros, implying an 18.2% return.
Orcel could even pay an equity premium north of 20% and still clear his stated 15% M&A returns threshold. The bounty is similarly juicy on a hypothetical Commerzbank bid, Breakingviews calculated in September.
The tactical logic is defensible, too. BPM recently took a 5% stake in smaller peer Banca Monte dei Paschi di Siena BMPS.MI. A full bid would make the combined group harder to swallow, meaning that Orcel had to act before one materialised. Similarly, in Germany, leaping on a Commerzbank block trade allowed UniCredit to shut out possible rival suitor Deutsche Bank DBKGn.DE.
The risk, however, is that all this aggression merely stiffens the targets’ opposition. Arguably Berlin might have been less hostile to UniCredit had it taken a softer approach with Commerzbank. Equally, Orcel’s BPM swoop risks catalysing the very MPS deal that he fears.
Finally, UniCredit may be confusing its shareholders by running two very different M&A situations in parallel, perhaps explaining a 3% share-price dip on Monday. The most pessimistic interpretation is that Orcel thinks his valuation premium, using price-to-tangible book value multiples, has peaked vis-à-vis BPM and Commerzbank – explaining his urge for a share-based deal. Sometimes aggressive and complex tactics can be a sign of strategic weakness.
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CONTEXT NEWS
Italy's UniCredit on Nov. 25 launched a 10-billion-euro all-share offer for smaller domestic peer Banco BPM. The proposal implies a 0.5% equity premium for the target’s shareholders.
Italy's second-largest bank had previously readied a bid for Banco BPM in 2022, just before the Ukraine conflict broke out, Reuters reported.
On Sept. 11, 2024, UniCredit said that it had acquired a 9% stake in Germany’s Commerzbank and would “explore value creating opportunities for all stakeholders in both banks”. The Italian bank on Sept. 23 said that it had bought a further 11.5% of Commerzbank through derivatives, taking its total potential holding to around 21%.
Any bid for the German lender would follow the bank completing the integration of Banco BPM, UniCredit’s CEO Andrea Orcel said on Nov. 25.
Shares in UniCredit were down 3% as of 0918 on Nov. 25, compared with a 2% rise for Banco BPM and 6% fall for Commerzbank.
UniCredit's premium price-to-book value multiple https://reut.rs/3VvEnKL
Editing by George Hay and Streisand Neto
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