MPS: the market reacts coolly to Lovaglio’s two-pronged move. Analysts describe it as ‘complex and uncertain’

(Il Sole 24 Ore Radiocor) - Luigi Lovaglio’s counter-move to halt Intesa Sanpaolo’s takeover bid for MPS, at least for now, is failing to galvanise the market, with analysts appearing to have doubts about the execution risks associated with a dual public offer of this complexity (whilst the simultaneous integration of Mediobanca is underway). Shares in Banca Monte Paschi Siena shares are rising, whilst those of Banco Bpm and Banca Generali are down. Up Intesa Sanpaolo. At current share prices, therefore, MPS’s takeover bid for Banco BPM is at a discount of 0.5 per cent, whilst the bid for Banca Generali is at a premium of 10.1 per cent. Intesa’s takeover bid, on the other hand, is at a premium of 1.2 per cent.

Leaving share prices aside, analysts appear sceptical about the actual feasibility of the dual takeover bid. “The deal,” one of them argues in an interview with Radiocor, “seems more like a defensive manoeuvre to shield MPS against Intesa’s OPAS than a sound business plan.” Hence the reasoning behind the reaction of the respective shares on the Milan Stock Exchange: “The market is cool because the exchange is entirely in shares, with no cash, and the integration is very complex”. For now, therefore, at least in the trading rooms, there is a sense of “too much uncertainty” and “few immediate benefits for those being acquired”, namely Banco BPM and Banca Generali.

Analysts at Equita, who are acting as advisers to Intesa Sanpaolo specifically on the OPAS bid for Rocca Salimbeni, make no secret of their concerns, not least because of the lack of unanimity recorded on the Siena-based board of directors at the time of the vote: “The resolution,” they write in a report, “was approved by a majority, but the abstention of four directors confirms the differences of opinion within the institution’s governance, with one section of the board having preferred not to express a view on a project still characterised by significant uncertainties on the industrial, financial and regulatory fronts.” According to the Milan-based SIM, therefore, “the main point of concern regarding the dual transaction, which is predominantly defensive in nature, remains the high execution risk. MPS would in fact find itself simultaneously managing the completion of the integration of Mediobanca, the merger with Banco BPM and the acquisition of Banca Generali – a process far more complex than the OPAS launched by Intesa Sanpaolo”.

That is not all. Equita points out that Monte dei Paschi ‘already factors in the implicit premium in Intesa’s offer’ and, consequently, ‘pursuing an alternative strategy would therefore mean shareholders forfeiting that premium’. Finally, the success of the transaction remains contingent ‘not only on the approval of MPS’s major shareholders (such as Delfin), but also on the consent of the controlling shareholders of the target companies’. As for BPM, Crédit Agricole (the largest shareholder with 29.3 per cent) “has already expressed doubts about the actual scope for value creation in a merger with MPS, reiterating its preference for a deal” between the Bank and Crédit Agricole Italia. As for Generali, however, “we expect the market to question the reasons that might lead Generali to relinquish control of Banca Generali in order to take a minority stake in MPS, whilst also considering the possible effect of cross-shareholdings on the full exercise of voting rights”. These are all doubts that the market will have to resolve.