(Bloomberg) -- Italy is making moves to comply with European Union demands to dispose of Banca Monte dei Paschi di Siena SpA, leveraging off favorable market conditions and the bank’s progress in turning itself around, as lack of interests from rivals makes a merger less likely.

The government led by Prime Minister Giorgia Meloni sold 157.5 million shares in the bank for €4.15 each, a 2.5% discount on Monte Paschi’s closing price, the Finance Ministry said Tuesday in a statement. The pricing is 42% higher than the government’s previous placement in November and makes for a total of about €650 million ($704 million).

The disposal marks the second such sale on the market, and given the favorable pricing a third placement is possible, according to people familiar with the matter, who asked not to be named as decisions may change depending on conditions.

Current prices plus the success to date of a turnaround program at the bank are making it easier for the state to divest from the bailed-out lender. The most recent sale left Italy with a 26.7% stake. BofA Securities, Citigroup Global Markets Europe AG, Jefferies and Mediobanca acted as joint global coordinators and joint bookrunners.

Monte Paschi shares rose 0.5% at 11:17 a.m. in Milan on Wednesday, erasing earlier losses. 

The proceeds from the disposal will be used to cut Italy’s mammoth debt, feeding into a €20 billion privatization program launched by Meloni’s right-wing administration. 

What Bloomberg Intelligence Says:

Italy’s disposal of another 12.5% stake in Monte Paschi will lower its holding to below 27%, still high but a step closer to making the world’s oldest bank a potential M&A target. The CEO has repeatedly called for consolidation in Italy’s banking sector after the lender’s well-executed recovery plan.

— Lento Tang, Ilia Shchupko, BI analysts. for the full note click here.

Italy began the process of exiting Monte Paschi in November by selling 25% of the bank for about €920 million, a notable win for the government. 

Founded in 1472, Monte Paschi has undergone years of painful efforts to turn its business around. The bank was first bailed out in 2009 after it was hit by souring loans and derivatives deals that backfired. In the following decade it struggled to deliver consistent profit, given limits the EU set in exchange for nationalization in 2017. 

Rome has long struggled to sell its controlling stake in Siena-based Paschi. Three years ago, the previous government tried and failed to combine Paschi with UniCredit SpA. But progress made under Chief Executive Officer Luigi Lovaglio — who’s implemented a turnaround after years of restructuring — has made Paschi more appealing to investors. 

Still, no suitors are stepping up so far, with smaller rivals shying away from such a complex undertaking, the people said. That may force Rome to keep selling shares on the market to comply with EU requirements, they said.

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