Commerzbank takeover: Germany questions UniCredit’s ‘hostile’ strategy

UniCredit’s bid to raise its stake in Commerzbank to 29.9% faces German resistance. The European Commission sees potential benefits in consolidation, while analysts predict significant financial synergies.

The potential merger between Italy’s UniCredit and Germany’s Commerzbank is fuelling debates across Europe, raising questions about its economic and political implications.

While UniCredit’s CEO, Andrea Orcel, aims to boost profitability and create a pan-European banking giant, the German government, which still owns a 12% stake in Commerzbank, remains cautious about the hostile nature of the takeover bid.

UniCredit’s bold move

On Monday, UniCredit increased its stake in Commerzbank from 9% to 21%, through the use of financial derivates, and is now seeking European Central Bank (ECB) approval to expand that to 29.9%.

The Italian bank has stated that its investment in Commerzbank offers several pathways, including the potential for a full merger or strategic collaboration. Orcel has positioned the deal as a significant opportunity for UniCredit to unlock Commerzbank’s unexpressed value, stating that this could be achieved even without a formal merger.

During a recent conference with investors in London, Orcel outlined three potential strategies: further increasing UniCredit’s stake and pursuing a full merger, engaging in collaborative efforts to maximise the value of both institutions, or even selling its stake if favourable terms cannot be reached.

However, Orcel made clear that UniCredit would only proceed if the conditions were right and with broad shareholder support, emphasising the need for disciplined negotiation.

What is a hostile takeover?

Hostile takeovers occur when one company tries to acquire another without the backing of its board of directors.

In contrast to friendly mergers – where both companies agree to terms – a hostile takeover is often viewed negatively by the target company’s management and shareholders.

The acquiring company might bypass the board and appeal directly to shareholders to purchase enough shares to take control or gain significant influence.

In the case of UniCredit and Commerzbank, UniCredit’s rapid increase in stake has been described as hostile because it has proceeded without the full support of Commerzbank’s board, causing unrest among German politicians and key stakeholders.

These takeovers often provoke concerns over the target company’s autonomy and fears about potential job cuts, restructuring, or shifts in business that could negatively impact the local economy or workforce.

The German government stance

Although the German government has no intention of increasing its stake in Commerzbank, it is deeply concerned about UniCredit’s aggressive approach.

Finance Minister Christian Lindner recently noted that, while the government shouldn’t be involved in a private bank indefinitely, UniCredit’s tactics have unsettled many German shareholders.

He warned that “hostile takeovers harbour great risks”, and emphasised the importance of stability for such a critical part of the German banking sector. State Secretary Florian Toncar echoed these sentiments, cautioning against rushing into a takeover of such a complex and highly regulated institution.

He highlighted that Commerzbank plays a vital role in Germany’s economy, particularly through its work with more than 25,000 business clients and its handling of nearly one third of the country’s foreign trade payments.

European Commission view on bank consolidation

While Germany’s position is one of caution, the European Commission has adopted a broader, more optimistic view of potential mergers.

Veerle Nuyts, a spokesperson for the Commission, highlighted that mergers could make banks more resilient, allowing them to diversify their assets and streamline their operations. This could enable banks to pursue more efficient business models and invest more in digitalisation.

Nuyts did, however, caution that any restrictions on mergers should be grounded in legitimate concerns, such as financial stability or consumer protection, and must comply with EU treaties.

Although the Commission doesn’t comment on specific cases such as UniCredit’s bid for Commerzbank, it generally views larger, more diversified banks as beneficial for the broader EU economy.

Financial implications of a merger: Goldman Sachs’ analysis

From a financial perspective, the potential merger could generate significant synergies.

According to a recent Goldman Sachs analysis, a merger between UniCredit and Commerzbank could result in a 15% reduction in Commerzbank’s operational costs, translating to around €800m in savings.

This cost-cutting, coupled with Commerzbank’s €3.4bn in baseline profit before taxes, could drive a 37% increase in UniCredit’s group profit before taxes and a 29% uplift in net profit.

If the merger were to proceed, the resulting banking giant would hold approximately €1.3tn in assets, nearly €700bn in loans, and €875bn in deposits. The combined operations would generate an estimated €12.3bn in net profit, with Germany playing a central role in the merged entity’s business.

Challenges ahead

Despite the potential financial benefits, this merger faces significant challenges. German stakeholders are apprehensive about losing control of a critical national institution, and the government has made clear its discomfort with UniCredit’s aggressive tactics. Additionally, UniCredit still needs ECB approval to increase its stake to 29.9%.

As UniCredit pushes ahead, it must navigate Germany’s concerns and Commerzbank’s critical role in the national economy.

Whether or not the merger ultimately happens, the discussions it has sparked around the future of banking consolidation in Europe are likely to continue for some time.