"UniCredit Acquires Stake in Commerzbank to Expand in Germany"

UniCredit has acquired a stake in Commerzbank as part of its strategy to strengthen and expand its footprint in the German banking market. This move is intended to enhance UniCredit's presence and influence within Germany, signaling a significant step in its growth plans and commitment to increasing its operations and market share in the region.

It was late Tuesday evening in Europe, and investor unease was increasing. The German government’s attempt to sell Commerzbank shares in a market placement, which initially seemed straightforward, was encountering delays.

Investors had anticipated that the deal would conclude quickly after JPMorgan and Goldman Sachs began taking orders earlier that afternoon, according to a source familiar with the transaction and updates sent by the banks to investors, as reported by Reuters. The sources requested anonymity due to the private nature of the sale details.

The news did not emerge until the early hours of Wednesday. In an unexpected and unusual move, all the shares—valued at around 700 million euros—were acquired by a single buyer, with Goldman Sachs no longer participating in the sale.

Italy’s UniCredit, under CEO Andrea Orcel, acquired the entire 4.5% stake by outbidding others. Additionally, UniCredit had secretly purchased another 4.5% on the open market, positioning itself as a major shareholder and opening the possibility of a merger with Commerzbank, which had engaged Goldman Sachs for defense.

Some German government officials were caught off guard by Orcel’s maneuver. However, there had been ongoing speculation about UniCredit, which is well-capitalized and already owns German lender HVB, being interested in Commerzbank if the opportunity arose. European regulators have also supported consolidation in a sector struggling with low profitability.

The announcement last week from Berlin about selling part of its 16% stake in Commerzbank seemingly gave Orcel the chance he was waiting for. On Wednesday, U.S. stocks closed higher, thanks to gains from technology stocks, despite initial negative sentiment due to inflation data.

Mark Kelly, CEO of MKP Advisors, suggested that UniCredit’s actions were likely part of a well-coordinated long-term strategy rather than a chance occurrence. UniCredit declined to comment on the article, and officials from JPMorgan and Goldman Sachs also refrained from discussing their roles in the transaction.

UniCredit paid a 4.8% premium over Tuesday’s closing price, spending about 700 million euros on the government stake, as noted in a term sheet. JPMorgan was required to accept the best offer for a fair and transparent process, according to another source who spoke anonymously.

Goldman Sachs had to withdraw from the sale due to a potential conflict of interest and is now advising Commerzbank on defense strategies. As the news broke, Orcel reached out to Commerzbank management to discuss possible merger talks, another source informed Reuters.

UniCredit has indicated that it seeks approval to acquire more than 9.9% of Commerzbank if desired. “The next move is up to UniCredit, and attention will focus on whether it will increase its stake above 9.9%,” said Filippo Alloatti, Head of Financials (Credit) at Federated Hermes.

Other European banks might also be evaluating their strategic options, including Deutsche Bank, which declined to comment. Commerzbank quickly held a board meeting on Wednesday to discuss strategies to maintain its independence and explore defense mechanisms against a possible UniCredit bid. A government source mentioned that Germany might pause further share sales after the unexpected turn of events, as both the bank and the government need to reassess the situation. Trade unions also oppose a merger due to concerns over potential job losses. Commerzbank shares ended up 16.6% at 14.69 euros in Frankfurt, while UniCredit’s shares closed 0.2% higher in Milan.

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Source: reuters‍