The boards of Banca Intesa and Sanpaolo IMI agreed on Saturday to merge and create an entity to rival Europe’s top banks. The link-up between the two banks, the second and third biggest in Italy, will transform Italy’s business landscape, put the new entity at the pinnacle of the country’s fragmented banking system and create a national champion capable of fending off takeovers by foreign banks.
The new bank would top UniCredit as the dominant retail player in Italy with a domestic network of 6,300 branches, twice as many as its local rival. But its presence abroad would be less significant than that of UniCredit, the number two bank in Germany and the leader in central and eastern Europe.
Under the terms of the deal, unveiled in a joint statement after the boards of both banks approved the merger, Intesa will offer 3.115 new shares for each ordinary and preferred share in Sanpaolo. Intesa shares closed on Friday at 5.05 euros and Sanpaolo shares at 16.04 euros, equivalent to a swap-ratio of 3.18. This week’s sharp rallies in both banks’ shares have boosted the market value of the combined entity to about $77 billion euros, including Intesa’s saving shares, propelling it into Europe’s top 10 after one of the region’s biggest bank mergers. The merger, to be completed by the start of next year, would generate pre-tax synergies of 1.3 billion euros by 2009 and result in one-off pretax charges of 1.5 billion euros.
Intesa’s CEO Corrado Passera is to head the new merged entity which will be headquartered in Turin. An executive board will be chaired by Sanpaolo chairman Enrico Salza and a supervisory board by Intesa’s chariman Giovanni Bazoli.
France’s Credit Agricole, Intesa’s top investor with an 18 percent stake, and Spain’s Santander, which owns 8.4 percent in Sanpaolo, backed the deal along with all other major shareholders. Santander could make a capital gain of 1.2 billion euros if it sold its stake, declined to comment when asked whether it wanted to sell. “Today, our size and the numbers put us in a position to have at our disposal a competitive banking group with which to undertake the path toward an international development amid Europe’s greatest,” says Alfonso Iozzo, Sanpaolo CEO.
Agricole says that it “has approved the outline of the merger project between Banca Intesa and SanPaolo IMI regarding a potential combination.”
Intesa-Sanpaolo will have a 20 percent market share in Italy with a strong presence in the country’s industrial heartland in the north. The banks said they could sell up to 10 percent of their combined network of more than 6,000 branches in Italy after the merger. Italy’s antitrust authority has been informally notified of the merger plan. If it goes ahead, the authority will review the deal instead of Brussels, because the combined entity generates the bulk of its revenues in Italy.
The Italian banking sector has been seen as ripe for consolidation following the appointment of Mario Draghi as the country’s central-bank chief earlier this year. Draghi has encouraged consolidation in the sector and scrapped a rule requiring financial services companies to inform the central bank of any mergers or acquisitions before their plans could be made public. Draghi replaced Antonio Fazio as head of the central bank after Fazio was investigated over whether he attempted to interfere in the ultimately successful takeover of Banca Antonveneta by Holland’s ABN Amro. Italy’s prime minister, Romano Prodi, said last week that a deal between the two banks is “a really great thing,” for the Italian banking system.