France's Credit Agricole makes $875 million buyout offer for Italy's Creval

PARIS/MILAN (Reuters) - France’s Credit Agricole offered to buy third-tier Italian lender Creval for 737 million euros ($875 million) on Monday, as a wave of consolidation sweeps Italy’s banking sector.

FILE PHOTO: A Credit Agricole sign is pictured on a building of the bank in Geneva November 26, 2014. REUTERS/Denis Balibouse

France’s No.2 bank had been considering expanding in Italy, its second biggest market, and both Creval and larger rival Banco BPM had been tipped as possible targets.

Credit Agricole Italia will pay 10.5 euros per Creval share, a 21.4% premium on Friday’s closing price. Shares in Creval jumped 23.7% slightly surpassing the offer’s price. Credit Agricole closed up 3.9%. Banco BPM declined 3.7%.

The buyout offer is expected to be launched by April and is subject to a two-thirds minimum acceptance threshold by Creval shareholders.

Intesa Sanpaolo’s surprise takeover of UBI earlier this year prompted rivals in Italy to explore alternative deals.

Credit Agricole Italia had held preliminary talks with Banco BPM, Italy’s No.3 bank and a long-standing commercial partner, but they stalled, sources have said.

Banco BPM on Friday welcomed merger overtures by the top investor in BPER Banca.

Credit Agricole Italia had also doubled over the last few months a 5% Creval stake acquired in 2018 as part of an insurance deal.

“We were in an ambiguous situation. We had this long-term bancassurance accord but it was difficult to pursue synergies,” Credit Agricole Italia CEO Giampiero Maioli told a press briefing.

The merger would save 150 million euros a year before taxes, leading to a return on equity above 10% in 2023 for the combined entity.

Plans for the buyout offer emerged over the last month and were discussed with the European Central Bank and Italian authorities, including the Treasury with which relations are excellent, Maioli said.

The deal may benefit from tax breaks for mergers that Italy has drafted to facilitate the re-privatisation of bailed-out Monte dei Paschi, a scheme which Mediobanca Securities analysts see as “a game changer for consolidation”.

“We’ve always taken part in Italian bank consolidation,” Maioli said. “This new investment ... is a testament to our degree of confidence in the country.”

Mergers are also attractive because of discounted bank valuations, which translate into paper profits for buyers.

The offer values Creval at 0.4 times its tangible assets, a level that analysts said was “good news” for Italian banks while still leaving a 1 billion euro earnings boost Credit Agricole Italia will use to cover clean-up and restructuring costs.

The unit plans to launch a share issue to rebuild its capital buffers, fully guaranteed by Credit Agricole.

Maioli said there were no other merger discussions in Italy.

The group would have a 5% market share nationwide, with more than two thirds of branches concentrated in Italy’s wealthy north.

The offer is friendly and conversations with Creval’s top managers on Sunday to inform them of the bid were “very cordial,” Maioli said.

Intesa also considered its offer friendly but opposition from UBI and its shareholders forced it to increase the price.

The 737 million euro offer includes the outlay for the agreed purchase of a 5.4% Creval stake from London-based fund Algebris, as well as the acquisition of a 9.8% holding from the group’s Credit Agricole Assurance unit.

Credit Agricole entered Italian retail banking in 2007 buying northern banks Cariparma and Friuladria, to which it added three small ailing banks a decade later. In the meantime, its asset manager Amundi had acquired rival Pioneer from UniCredit for 3.6 billion euros.

“We keep a long-term view and don’t get scared if Italy’s debt risk premium goes up and down,” Maioli said.

Additional reporting by Pamela Barbaglia in London; Editing by Kirsten Donovan, Susan Fenton and Barbara Lewis