By Andrea Mandala, Valentina Za and Elvira Pollina
MILAN (Reuters) -Italy's Banco BPM on Tuesday rebuffed a 10 billion euro ($10.5 billion) unsolicited takeover offer by rival UniCredit, saying it undervalued the bank, tied its hands in strategic deals and created new risks for shareholders.
BPM said the 0.5% premium offered was "unusual for such offers", and complained it created problems for its acquisition of fund manager Anima Holding.
UniCredit's bid for BPM also throws a spanner in the works for Italy's government, which had advanced plans for a merger of BPM with rival Monte dei Paschi di Siena which it saw as strengthening its banking sector without harming competition.
After a meeting on Tuesday, BPM's board concluded that UniCredit's offer "does not in any way reflect Banco BPM's profitability and the potential to create further value for shareholders".
BPM said its shareholders would also be exposed to the uncertainty linked to UniCredit's expansion plans in Germany, where CEO Andrea Orcel has been working on a possible bid for Commerzbank (ETR:CBKG).
The UniCredit bid triggers a 'passivity rule' that stops a managers of a takeover target from doing anything that could thwart the bid without calling a shareholder meeting to win approval.
This prevents Banco BPM from raising the price of its bid for Anima.
Orcel said on Monday his bank could not afford to be sidelined as consolidation in Italy sped up.
Shares in Banco BPM closed up 5.5% on Monday at 7 euros, above the 6.657 euros a share offered by UniCredit in its all-share offer - a sign the market sees the bid's 0.5% premium as too low.
Orcel acknowledged in an investor call on Monday that the bid's price was close to the market price, noting that a cash component can be added later on.
The bid is non-binding and has to be confirmed within 20 days, by which deadline UniCredit must file the offer document with Italy's market regulator.
Shares in UniCredit, driven higher with generous payouts during Orcel's first three-and-a-half years at the bank, were flat on Tuesday after a 4.8% drop the previous day.
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Putting to use skills he honed during a 30-year career in investment banking, Orcel in September turned UniCredit into the biggest investor in Commerzbank.
The move sparked a political backlash. With Germany now heading to national elections, Orcel said he had decided to bid for BPM, which has always been a target, because there was no opportunity to advance on Commerzbank.
UniCredit ditched at the last minute a buyout offer for Banco BPM in early 2022, sources have previously told Reuters, just before the Ukraine war broke out.
Since then, Banco BPM has built up defences through a number of partnerships that can be hard to untangle ahead of expiry and would saddle a buyer with long-term contracts that could eat away at a portion of fee revenues.
Banco BPM's main partner is Credit Agricole (OTC:CRARY), the French bank that became Banco BPM's main shareholder with a 9.2% stake after UniCredit's aborted buyout bid in 2022.
Credit Agricole's move irked Orcel, people with direct knowledge of the matter had previously told Reuters, complicating relations between UniCredit and Credit Agricole-owned Amundi, Europe's biggest asset manager.
Amundi partnered with UniCredit after buying the Italian bank's asset management business in 2017. The two are tied by a contract that runs until 2027, which Orcel has been seeking to renegotiate early to improve terms for his bank.
On Monday Orcel said he was eager to engage with Banco BPM's investors, especially some "industrial" ones, to discuss potential solutions given the offer's low price.
A spokesperson for Credit Agricole on Tuesday told Reuters the bank had not applied to supervisors to raise its Banco BPM holding above 9.9%. ($1 = 0.9542 euros)