Italy’s Intesa Sanpaolo on Thursday said it was ready to accept a lower price in a deal it has agreed with BPER Banca to address possible antitrust issues in a proposed takeover of rival UBI Banca.
The move follows a coronavirus outbreak which has killed more people in Italy than in any other country in the world including China and crippled the economy, driving a 45% drop in the market value of Italian banks.
In a surprise all-share bid for UBI, Intesa last month offered 1.7 new shares for each UBI share tendered, to create the euro zone’s seventh-largest banking group with a focus on asset management and insurance.
At the time, Intesa’s bid valued UBI at 4.9 billion euros, a figure which has now shrunk to 2.8 billion euros compared with UBI’s current market value of 2.6 billion.
To win antitrust approval for the planned merger, Intesa signed a binding accord with BPER to sell 400-500 branches of the combined entity and 20 billion euros in loans.
To fund the purchase, BPER planned to raise around 800 million euros in a new stock sale after the summer.
The market slump and the deep recession into which Italy is expected to have sunk due to measures to curb the contagion make a cash call an impossible task for BPER, which is now worth just 1.2 billion euros, analysts have said.
Under the revised terms, BPER would pay the lowest of the amount previously agreed and a figure equivalent to 80% of the implied multiple which Intesa will be paying for UBI’s core capital if its bid is successful.
That multiple has currently halved to 0.3%.
The amount previously agreed was equivalent to 55% of the core capital of the portion of business being spun off.
The new mechanism allows for any market fluctuations to be factored into the price.
The health crisis is driving bank revenues lower and default rates higher, hitting lenders through higher loan losses.
Sources close to the merger process had said a price adjustment in the deal with BPER was likely because Intesa was determined to see through its takeover offer, which is awaiting regulatory approval and should launch at the end of June.
In a merger, cost cuts can help to offset slumping revenues and the market sell-off increases the discount to UBI’s book value from which Intesa can benefit.
Broker Equita said the dangers banks face in the current situation could prompt a change of mind among some UBI investors who have rejected the offer.
Equita estimated a 10% reduction in Italian banks’ earnings in 2020-21 with a 1.5% economic contraction in 2020 followed by stagnation in 2021.
Source: Reuters.com