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(Bloomberg) — UniCredit SpA built a 9% stake in Commerzbank AG and plans to enter into talks with the lender, raising the possibility of a takeover that could reshape Europe’s banking landscape.
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The Italian bank acquired 4.5% from the German government, with the rest bought on the market, it said Wednesday, confirming a Bloomberg report. That makes it the second-largest shareholder behind Germany, which has announced plans to exit its holding.
Commerzbank shares surged as UniCredit said it will seek authorization to raise its stake further to “maintain flexibility,” though any such move would depend on the investment meeting its “financial parameters.”
UniCredit already owns a large bank in Germany known as Hypovereinsbank. Any takeover of Commerzbank would turn the Italian lender into a powerful force in corporate banking and retail banking in Europe’s largest economy. Commerzbank this week announced that Chief Executive Officer Manfred Knof won’t seek a new term when the current one runs out at the end of next year.
“UniCredit will engage with Commerzbank AG to explore value creating opportunities for all stakeholders in both banks,” it said in the statement, adding it’s “supportive” of the “management board and supervisory board and the progress that they have made in improving the bank’s performance.”
Shares of Commerzbank surged as much as 18% and traded 16% higher at 9:15 a.m. in Frankfurt. UniCredit rose 1% in Milan.
UniCredit had previously considered buying Commerzbank, Bloomberg has reported, though it never made an official move. CEO Andrea Orcel indicated earlier this year that takeovers could become more attractive for the Italian lender if its share price continues to outperform the competition.
While both lenders have benefited from the interest rate increases kicked off by the European Central Bank a little over two years ago, UniCredit has outperformed as Orcel cut costs and streamlined the structure. That has lifted the Italian bank’s price to tangible book ratio — a valuation metric — to 1.05, roughly double that of Commerzbank, according to data compiled by Bloomberg.
The Italian bank is sitting on €10 billion ($11 billion) for potential acquisitions, a figure that would be between €6 billion and €7 billion once the Basel III regulations are fully taken into account. Orcel has said that he’s constantly looking at possible acquisitions in the markets where UniCredit operates, though valuations and conditions have to be right.
A skilled dealmaker, he made his first large acquisition as UniCredit CEO last year by agreeing to buy the Greek state’s holding in Alpha Bank and acquiring Alpha’s Romanian unit. In July, UniCredit agreed to buy Polish banking services provider Vodeno and Belgian digital bank Aion Bank SA.
“Banking is increasingly a business of scale,” Hugo Cruz, an analyst at KBW, said in a note. Both lenders “are large in corporate banking, so there should be obvious synergies between the two banks if a deal is done right.”
Commerzbank “also brings Poland to the table, which is a market that UniCredit knows well and arguably likes,” he said.
UniCredit is paying €13.20 per share for the roughly 53.1 million shares it has bought from Germany, generating proceeds of €702 million, the country’s Finance Agency said in a separate statement. The Italian bank’s offer for the stake was a “significant outbid” of everyone else, it said.
The government now has committed to a 90-day restriction on further sales of Commerzbank shares, though exceptions apply, the agency said.
“This first partial sale of the federal government’s stake heralds the completion of the successful stabilization and thus the exit” from Commerzbank, Finance Agency head Eva Grunwald said in a statement. “Commerzbank has shown to be standing firmly on its own feet again.”
A full takeover of Commerzbank is likely to run into opposition from labor representatives, who traditionally have a strong voice in corporate boardrooms in Germany.
“We do not need another disaster like the one we saw at Hypovereinsbank,” said Stefan Wittmann, a labor representative who sits on Commerzbank’s board of directors. “We do not need Italians to come in and wind up traditional German banks.”
UniCredit said the purchase of the Commerzbank stake won’t affect its existing distribution policy. The lender has boosted the amount of money paid to shareholders more than any other bank in Europe and is on track to pay out just over €10 billion this year, according to Bloomberg calculations.
(Updates with shares from third paragraph, context throughout.)
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