UniCredit buys 9% stake in Germany's Commerzbank, sparking takeover talk

By Tom Sims, Valentina Za and Giulia Segreti

FRANKFURT/MILAN (Reuters) -Italy's UniCredit said on Wednesday it had acquired a 9% stake in Commerzbank and will seek approval to potentially buy more, in a move that raised the prospect of CEO Andrea Orcel preparing to take over the German lender.

UniCredit paid 700 million euros ($773.2 million) for almost half of the stake by bidding for shares offered by the German government to reduce its holding in Commerzbank, and acquired the rest on the market, the Italian bank said in a statement.

Commerzbank shares were up 18.5% as of 1030 GMT in Frankfurt, trading at 14.98 euros, while UniCredit was up 0.4% in Milan trading.

The move by Italy's No. 2 bank on Germany's No. 2 lender makes UniCredit one of Commerzbank's largest shareholders and follows previous attempts in recent years by the Italian lender to strengthen its German presence by acquiring the rival.

UniCredit, which is already has a foothold in Germany through its ownership of HVB and is flush with excess capital, said it would "explore value creating opportunities for all stakeholders in both banks".

"UniCredit will submit regulatory filings for authorization to potentially exceed 9.9% of Commerzbank if and when necessary," the bank said.

UniCredit made a "significant outbid of all other offers", paying 13.20 euros per share and above the daily closing price of 12.6 euros, the German government said in a statement. The move took the officials in the finance ministry, which had expected to sell the shares to multiple buyers, by surprise.

Commerzbank said in a statement that it had taken note of the purchase, calling it a "testament to the progress made" by the bank.

A person familiar with the bank's thinking told Reuters it would consider merger proposals as necessary.

One Commerzbank Supervisory board member Stefan Wittmann said he would fight any potential takeover.

"We will do everything we can to prevent it. We will fight it," Wittmann told Reuters. Wittmann said UniCredit's purchase of HVB resulted in too many job losses and moved decision-making to Milan.

Commerzbank CEO Manfred Knof, who has played down the prospect of big tie-ups, on Tuesday said he would step down when his current term ends next year.

European bank executives and regulators have long wanted to consolidate Europe's fragmented banking market through cross-border mergers but have complained of major hurdles to mega deals. Takeover talk has often fizzled.

"At first glance, we think a full takeover of Commerzbank could make financial and strategic sense for UniCredit," KBW analysts said.

UniCredit's share price has quadrupled since Orcel's arrival in April 2021, valuing the bank at 59 billion euros, against Commerzbank's 15 billion euros.

Orcel, one of Europe's most experience dealmakers, has repeatedly said that he would consider M&A deals for UniCredit, provided they meet strict financial conditions. A person familiar with his strategy has told Reuters he looked for at least a 15-20% return on any investment.

One UK-based shareholder in UniCredit described the move as "clever and opportunistic", showing discipline while buying a stake "on the cheap with optionality on what to do next".

UniCredit has built up excess capital - totalling 6.5 billion euros after accounting for Basel IV regulations - as profits soared.

Last November UniCredit bought a 9% stake in Greece's Alpha Bank from the country's bank bailout fund.

PAST APPROACHES

The German state has held a 16.5% Commerzbank stake through its bank rescue fund as a result of a bailout 16 years ago during the global financial crisis.

Berlin said last week that it would begin to pare down its holding, a move that began on Tuesday with the sale of some 53 million shares, which reduced its stake to 12%.

In the past, German officials had privately expressed reluctance to let a foreign buyer acquire Commerzbank amid fears it would create an even stronger domestic competitor for Deutsche Bank.

Deutsche Bank declined to comment on the transaction.

UniCredit's Orcel studied a deal with Commerzbank soon after taking the helm and approached Knof in early 2022, before the Ukraine conflict, people with knowledge of the matter have told Reuters.

Orcel's predecessor, Jean Pierre Mustier, had also been working on a Commerzbank acquisition but political opposition thwarted any deal, according to a person who had worked on the transaction.

($1 = 0.9054 euros)

(Reporting by Tom Sims, Giulia Segreti and Valentina ZaAdditional reporting by Sinead Cruise and Christian FraemerWriting by Tom Sims and Tommy Reggiori Wilkes Editing by Rachel More, Christina Fincher and Tomasz Janowski)