By Valentina Za and Gianluca Semeraro
MILAN (Reuters) -State-backed Monte dei Paschi di Siena on Friday joined the consolidation wave sweeping Italian banking with a surprise 13.3 billion euro ($14 billion) all-share offer to buy merchant bank Mediobanca (OTC:MDIBY).
The takeover offer, which was welcomed by the government but puzzled analysts and investors, comes after previous attempts to return Monte dei Paschi (MPS) to the private sector failed.
UniCredit CEO Andrea Orcel ditched a proposed MPS acquisition in 2021 and bid instead in November for Banco BPM, derailing government plans for an MPS-BPM tie-up.
Having spent 5.4 billion euros in 2017 to rescue MPS and avert a wider crisis, Italy had said its reprivatisation had to help to create a third major player in Italian banking.
MPS is offering 23 of its own shares for every 10 Mediobanca shares tendered, equivalent to a 5% premium versus Thursday's closing price.
MPS CEO Luigi Lovaglio, a veteran banker who presided over the Siena-based bank's turnaround, said the offer was meant as "friendly" and centred on preserving the Mediobanca name for investment banking.
"We have no plans to make Mediobanca disappear," Lovaglio said. "I don't even have the skills to be a CEO of an investment banking business."
A person close to the matter told Reuters Mediobanca saw the offer as not previously agreed, though not unexpected.
MPS shares lost 7% in late afternoon trading, meaning the bid now implies a 1.2 billion euro discount to the market price.
Analysts were cautious about the chances of success and execution risks. Jefferies said the corporate culture of MPS and Mediobanca, which it called "an odd couple", differed.
Deputy Prime Minister Antonio Tajani was positive about the offer. "Any market initiative aimed at strengthening our banking system ... is welcome," he said.
Mediobanca, focused on investment banking, wealth management and consumer finance, has a market value of 12.7 billion euros, above MPS' 8.8 billion euros.
But MPS has 3 billion euros in tax credits stemming from past losses which it can use in the deal, adding 500 million euros a year to profits for six years. It targets a 100% dividend payout ratio.
BILLIONAIRE SHAREHOLDERS
The buyout offer comes after Italy sold some of its holding in MPS in November, which brought in shareholders Delfin, the holding company of late billionaire Leonardo Del Vecchio, and fellow tycoon Francesco Gaetano Caltagirone.
Delfin is the biggest shareholder in Mediobanca with 19.8% while Caltagirone owns 7.8%.
Delfin nearly tripled its initial MPS holding to 9.8% in January, first raising the prospect of a potential deal.
MPS shares have more than tripled in value since November 2022 when Lovaglio pulled off a make-or-break cash call to fund thousands of staff layoffs and drive profits through cost cuts.
With interest rates set to fall, banks are under pressure to find different sources of revenues.
Lovaglio told analysts: "Even if it's something that is difficult ... there is a strong rationale."
"We will have a combination of revenues that will make us stronger ... to face a landscape that can be even more difficult than the current one."
Mediobanca is the largest investor in insurer Generali (BIT:GASI), which accounts for over a third of its income. MPS can benefit from that and also look to Generali when its insurance partnership with AXA ends in 2027, Lovaglio said.
Mediobanca made its name as an M&A boutique and lender to Italy's biggest companies before switching to wealth management under CEO Alberto Nagel.
Its major shareholders Delfin and Caltagirone have been critical of Nagel, accusing him of relying excessively on Generali.
MPS, which aims to take Mediobanca private, estimated pre-tax benefits of 700 million euros a year from the tie-up.
The finalisation of the exchange deal is expected by end-September.
PRIVATISATION DRIVE
Caltagirone and Delfin are also large Generali shareholders, accounting for almost a third of its capital base along with Mediobanca's holding.
Caltagirone, who had initially bought 3.5% of MPS, increased the stake to 5% in November. Italy has reduced its MPS stake to 11.7% from the initial 68%.
After UniCredit walked away from MPS, mid-sized rivals Banco BPM and BPER were left as the only two potential partners. Banco BPM in November became an MPS shareholder alongside Delfin and Caltagirone.
MPS' bid for Mediobanca will remove a potential defence option for BPM, which had considered whether it could pursue an MPS deal to fend off the UniCredit takeover.
($1 = 0.9568 euros)