Italian bank M&A circus risks sidelining investors
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, Nov 26 (Reuters Breakingviews) -Andrea Orcel’s 10-billion-euro offer for Banco BPM BAMI.MI on Monday could trigger a wave of possible countermoves from rivals within Italy and beyond. But as a group, the various players have lost market capitalisation since the day before the UniCredit CRDI.MI CEO made his approach. It suggests shareholders fear a value-destructive cascade of possible deals, leaving financial considerations on the back burner.
Admittedly, the only offer on the table right now looks like a lowball designed to spur talks. Orcel’s UniCredit lobbed in an effectively nil-premium all-share takeover for its mid-sized rival BPM. Still, UniCredit investors seem worried that the company will end up overpaying eventually. The bigger Italian bank is down 4.8% since Friday, amounting to 2.8 billion euros of lost equity value. The Euro STOXX Banks Index .SX7E is only down 1.2% over the same period.
Another possible player in the fast-evolving saga is France’s Crédit Agricole CAGR.PA, which owns 9.2% of BPM and on Tuesday had to clarify that it had not requested the watchdog’s approval to raise its ownership beyond the key 9.9% regulatory threshold. That came in response to Italian press reports of market rumours that the 39-billion-euro Gallic group was using derivatives contracts to up its stake. Investors in the French bank seem to fear that its outgoing boss Philippe Brassac will mount a value-destroying BPM bid too: Crédit Agricole shares are down 2.6% since Friday, implying 1 billion euros of lost value.
Perhaps the oddest fact in the whole saga is that the value destroyed at the possible bidders dwarfs the rise in value for BPM, which is up only 5% or 500 million euros since Friday. That’s a small move for a stock that looks like it could be subject to a bidding war. The target’s board on Tuesday said that UniCredit’s offer was too low. Orcel could afford to pay an equity premium north of 20% and still meet his return hurdles, Breakingviews calculated on Monday.
One explanation for the mooted BPM share-price reaction is that the target could contrive a way to squander the possible M&A bounty by doing a deal of its own. Italy’s government favours a tie-up between the lender and Banca Monte dei Paschi di Siena BMPS.MI, Reuters has reported. BPM could in theory make itself harder to swallow by launching that deal. But that in turn would mean paying an M&A premium, rather than receiving one from Orcel.
Add it all up, and the three parties have collectively lost 3.3 billion euros of equity value since Friday, which is 2.1 billion euros more than they would have lost had they tracked the euro zone banking index. Fear of missing out and big egos are a toxic mixture for shareholders. So far, investors see a lot of possible dealmaking and not very much value.
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CONTEXT NEWS
Banco BPM's board on Nov. 26 said that UniCredit's 10-billion-euro offer did not reflect the bank's profitability and its potential for further value creation.
UniCredit's move also upset Italy’s Treasury, Reuters reported.
Separately, France’s Crédit Agricole said on Nov. 26 that it had not applied to gain European Central Bank authorisation to cross the 9.9% ownership threshold with its holding in Banco BPM, Reuters reported citing a company spokesperson.
Italian press reports had mentioned market rumours that Crédit Agricole had entered derivative contracts to increase its 9.2% holding in Banco BPM.
Italian bank M&A saga destroys value so far https://reut.rs/40YI0wa
Editing by George Hay and Streisand Neto
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