Generali is an option: potential pros and cons
■ Intesa considering a tie-up with Generali among the potential options:
ISP confirmed to explore potential external growth options, including a tie-up
with Generali (GASI). Press reports that ISP may consider a public exchange
offer on the GASI majority via shares swap.
■ Strategic rationale needs more clarity: GASI business mix is largely Life
(60%), potentially fitting with ISP business. With GASI, ISP could acquire
businesses in France, Germany, CEE, Asia and EMEA. According to the
press, ISP could sell part of the foreign business (France, Germany). We see
Banca Generali and the asset management business as the most valuable
piece for ISP from an industrial perspective, while the traditional insurance
has limited strategic rationale in our view, also in light of regulatory
headwinds in the future (Danish Compromise duration).
■ Financial rationale could make sense: A cash deal could be highly dilutive
CET1 wise (-250bp vs. -190bp preliminary estimated), while in case of a
shares swap it could be CET1 neutral in the base case scenario (assuming
the Danish Compromise application). In the blue sky scenario, we estimate
+180bp CET1 accretion. The minority contribution could increase the capital
accretion/reduce the dilution. Excluding France and Germany, ISP could
acquire up to ~€840m in earnings (28% of FY16E profit) before synergies.
■ Potential pros and cons: The potential deal could be positive in terms of: (i)
capital; and (ii) earnings accretion. Among negatives: (i) DPS17E dilution; (ii)
acquisition at a stretched valuation (GASI trading on ~1.9x PNAV17E); (iii)
execution risk; (iii) potential regulatory headwind on the uncertain future of
the Danish Compromise; (iv) unclear strategic rationale. Questions pose on
the use of potential capital accretion to clean up the loan book.