Italian retail banking giant Intesa has offered to buy its smaller rival UBI Banca, for $5.3bn (€4.9bn), as a much-publicized Italian banks consolidation kicks off.
Intesa is offering about 1.7 newly issued shares to every holder of the UBI share, which it says would create a European-sized player that would focus more on insurance and wealth management. The bank has over 1.1 trillion euros of customers’ commercial assets, making it one of the biggest retail banks in Europe.
The Italian Banking sector set to consolidate
The consolidation of the Italian banking sector is expected to complete within the next few years, and Intesa is interested in growing its size to compete favorably in Europe, the bank said.
The bank said the deal will make the group the 7th largest bank in Europe in terms of assets. Intesa said the deal could help the bank reach its expected profit goal of €6bn by next year.
Intesa is planning to merge UBI and completely delist the bank. It hopes every document regarding the completion of the deal could be completed before the end of the year.
“We consider this deal to be a unique opportunity to create a European leader that leverages on a strong Italian footprint,” said Intesa chief executive Carlo Messina said on a conference call with analysts on Tuesday.
Addressing antitrust issues
To make sure there are no antitrust issues, Intesa said one of the contracts in the deal stipulates that it sells about 500 branches of the combined firms to BPER Banca. Also, it could sell some of the insurance assets of UBI to UnipolSai.
BPER, currently the 6th largest bank in Italy, stated that it’s planning to raise funds for the deal by launching a €1bn capital increase.
UBI has a similar business model with Intesa
Intesa said the reason it chose UBI for its expansion project is because of the similar business model it shares with the bank. According to Intesa, it would facilitate the takeover process and make things work more effectively. Also, since UBI operated mainly within Italy’s wealthier north, it could reduce transition and integration risk.
UBI shareholders stand to gain more
Intesa said the takeover would be beneficial to UBI and its shareholders. The bank reiterated that although UBI has a strong management team, it does not have the needed resources to match the digital investments required in the banking sector, with competition and negative interest rates making things more difficult.
According to forecast for the deal, the synergy of both banks could raise about €750m in annual pre-tax synergies, which would majorly comprise cost reduction on about 5,000 voluntary layoffs.
At the time of writing, UBI has not made a press statement regarding the takeover bid. A close source from Intesa says the deal has not been completely signed and sealed, but both parties are very open to negotiations.