Milanese magic: how UniCredit won support for its lowball Commerzbank bid
Tender offer tactics used by investment banker Andrea Orcel deliver latest twist in 21-month takeover battle
When UniCredit’s tender offer for Commerzbank closes on Tuesday, it will mark a milestone in one of the most contentious bids in German takeover history — and not just because management and the German government vehemently oppose it.
As well as warring over strategy and the bid premium, the two banks have been fighting over how Andrea Orcel’s bank has so far managed to secure the support of 11.86 per cent of Commerzbank shareholders during the six-week offer period.
In conjunction with its previous direct stake of 26.77 per cent and 3.22 per cent of share-settled derivatives, the Italian bank now controls more than 41 per cent of Commerzbank’s equity, well above the 30 per cent threshold it wanted to cross.
At face value — and based on Friday’s closing prices — those investors have voluntarily tendered at a discount, as the value of the UniCredit shares offered in exchange is below that at which Commerzbank’s equity now trades.
That has prompted finger-pointing by Commerzbank, which has urged Germany’s financial watchdog BaFin to investigate what it describes as “unusual tender behaviour”, which has the potential to misrepresent the popularity of Orcel’s bid.
Commerzbank chief executive Bettina Orlopp has argued that, as of last week, no institutional investor and only a tiny fraction of retail shareholders accepted the offer. On Friday, the German bank’s workers’ council decided to file a criminal complaint over the tender behaviour with prosecutors, directed against “unknown perpetrators”.
According to documents seen by the FT, the bulk of the shares tendered come from banks that are UniCredit counterparties in complex derivatives trades linked to the Italian lender’s takeover attempt, including Nomura and Citigroup.
But even so, UniCredit has rebuffed Commerzbank’s complaints.
It said: “UniCredit’s offer process and disclosures fully comply with the law and are clear and indisputable.
“Any confusion in the market is caused by Commerzbank’s repeated and unsubstantiated claims, which in an effort to obfuscate the merits of the transaction, have created uncertainty and risk to market integrity by obscuring already disclosed facts rather than clarifying them.”
The clash shows how, despite efforts by Orlopp to calm the waters this month, the fight for the future of Commerzbank remains fractious 21 months after UniCredit first acquired its surprise stake.
At the core of the latest dispute is a string of derivative contracts entered into by UniCredit and linked to Commerzbank shares.
In its offer document published on May 5, UniCredit disclosed 2.66 per cent of cash-settled total return swaps on Commerzbank’s shares. Subsequent disclosures show that figure had risen to 13.19 per cent by last week.
While UniCredit cannot demand the delivery of Commerzbank shares based on these contracts, its counterparties have committed to replicate the economic performance of Commerzbank’s stock. If the German lender’s shares go up, or the bank pays its dividend, the counterparties will pay the change in value to UniCredit. If the stock goes down, UniCredit must cover the difference.
The UniCredit chief executive and former investment banker has form for his canny use of derivatives. Orcel used them heavily in 2024 to quickly report a 21 per cent stake in Commerzbank even before UniCredit had secured the necessary approval from the European Central Bank to raise its stake above 10 per cent.
While the counterparties for its latest derivatives have not been disclosed, Nomura and Citi were named in the offer document as counterparties for earlier total return swaps, and Nomura disclosed a position of more than 8 per cent shortly after UniCredit started the tender offer. Both Citi and Nomura declined to comment.
According to people familiar with the matter, the underlying asset in at least some of UniCredit’s new total return swaps is not publicly listed Commerzbank shares, but the tendered line.
Legally, every share that is offered to UniCredit becomes a different security and gets a different asset identifier to tell them apart. Both tendered and untendered Commerzbank shares are listed and can be traded, with the difference that once the tender offer completes, the tendered shares automatically convert into UniCredit shares.
Total return swaps on a tendered line of shares are a rare but not entirely unusual feature of tender offers in Germany, according to a banker who specialises in total return swaps but is not involved in the UniCredit deal.
Counterparties of total return swaps hedge their exposure either by buying the underlying asset or by entering synthetic hedges. Insiders who analysed the tender activities and Commerzbank’s share registry said shares tendered by Nomura and other UniCredit counterparties were likely to be linked to the hedging activity of those banks.
“From the outside it is barely possible really to tell what is going on as the various TRS contracts and hedging agreements are complex and bespoke,” Thomas Schweppe, a former Goldman Sachs banker and founder of Frankfurt-based advisory firm 7 Square, told the FT.
“This dispute shows the shortcomings of German takeover rules and disclosure regulation,” he said, adding that transparency of derivative and swap structures under German law “is insufficient”.
BaFin, which declined to comment, has not publicly addressed Commerzbank’s concerns. But the watchdog has pressed UniCredit to broaden its disclosure on its short positions related to Commerzbank, according to people familiar with the matter.
As a consequence, the bank now reports that “more than 98 per cent” of its Commerzbank stake is hedged. Its disclosure about total return swaps is unchanged.
Orlopp remains open to a deal if UniCredit comes back with a more attractive offer, according to one person familiar with her thinking. She said at an investor conference earlier this month that the Italian bank would need to increase the premium on offer and safeguard the German lender’s business model, and then Commerzbank could back a tie-up.
Despite the animosity, she insisted: “There is a path [to] a friendly deal”.