(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.
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 much as 21% 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. Chief Executive Officer Andrea Orcel, who was a 42-year-old investment banker at Merrill Lynch & Co. at that point, helped advise on the transaction. It was Europe’s biggest-ever cross-border banking takeover at the time.
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 CEO Manfred Knof won’t seek a new term when the current one runs out at the end of next year.
Orcel made a courtesy call to Commerzbank on Wednesday, without raising strategic issues such as a potential takeover, people familiar with the matter said. Commerzbank’s supervisory board is scheduled to meet later to talk about the events, other people said. The people familiar asked for anonymity to discuss internal deliberations. Officials for the banks declined to comment.
Shares of the German lender traded 18% higher at 2:47 p.m. in Frankfurt. UniCredit rose as much as 3.3% in Milan.
UniCredit said in a statement earlier Wednesday that it will engage with Commerzbank “to explore value creating opportunities for all stakeholders in both banks,” adding it’s “supportive” of management and the board.
The lender had previously considered buying Commerzbank, Bloomberg has reported, though it never made an official move. Orcel indicated earlier this year that takeovers could become more attractive for his company 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, streamlined the structure and boosted shareholder payouts. That has the price to tangible book ratio — a valuation metric — to 1.05, roughly double that of Commerzbank, according to data compiled by Bloomberg.
Orcel is now 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. The CEO has said that he’s constantly looking at possible deals in 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.
The government had offered the shares in a price range of €12.48 to €12.60 apiece, and market investors had already put in bids for more than share than Germany was looking to sell, according to a person familiar with the matter. UniCredit eventually stepped in and offered €13.20, securing the deal, the person said, asking for anonymity to discuss private information.
That offer was a “significant outbid” of everyone else, Germany’s Finance Agency, which oversees Berlin’s Commerzbank stake, said in a statement. The sale of roughly 53.1 million shares is generating proceeds of more than €700 million, it said. The government now has committed to a 90-day restriction on further sales of Commerzbank shares, though exceptions apply.
“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.”
Read also: Orcel’s Money Machine Has $10 Billion to Reshape Europe Banking
Should UniCredit want to buy 10% or more of Commerzbank, it would have to notify the European Central Bank, as such a move triggers an assessment whether the buyer is reputable and financially sound enough to the transaction.
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. When UniCredit agreed to buy HypoVereinsbank in 2005, it announced thousands of job cuts afterwards.
“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 Orcel phone call in sixth paragraph.)
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