Intesa/UBI: con fuoco
Italian banks’ merger spat is resembling a scenario for an opera buffa
Intesa Sanpaolo’s spat with rival UBI Banca resembles a scenario for an opera buffa. Crazy plot twists are layering on top of one another, like voices in one of Rossini’s turbocharged quintets. Hostile offers are not supposed to work in banking. Italy’s largest lender launched one anyway. Only bidders are meant to invoke material adverse change clauses. That has not stopped target UBI Banca from attempting it.
Rivalries run deep in European banking. Consolidation is constantly discussed but rarely accomplished.
Intesa made its audacious all-share approach as the pandemic hit markets in February. It valued UBI at €4.9bn. At today’s prices the target would be worth around €3bn. Intesa stock has fallen two-fifths, in line with the Stoxx 600 banks index, UBI by less than this.
The impact of coronavirus on Italy certainly looks like an adverse change. But even acquirers have had limited success in using MAC clauses to void bids. UBI’s mooted legal challenge reflects frustration. The bank, with assets of €126bn compared with €848bn for Intesa, cannot currently mount a public defence under Italian bid rules. A court ruling that the offer was invalid would change that.
Local opposition is a more intractable problem for Intesa, though. This is embodied by CAR, a grouping of shareholders, many from UBI’s Lombardy pridelands. They hold some 18 per cent of UBI and the borrowers among them must fear tougher loan terms. Intesa needs the support of two-thirds of the shareholder base to integrate UBI and make cost cuts worth billions. It can take arm’s length control with just over half the shares.
That would take nerve and a higher offer. Intesa boss Carlo Messina is capable of both.
History is not on his side, however. In Europe, banks typically merge because one of them is going bust. Only financial stress trumps political and antitrust objections. The complexity of a comic opera distils to a simple message: true love conquers all. In European banking, multi-faceted bid stand-offs have a simple takeaway too: don’t rock the boat.