Italian bank UniCredit is edging closer to its longtime goal of taking over German rival Commerzbank, a landmark deal that would create a pan-European financial giant.
UniCredit now has control of around 42% of Commerzbank’s stock—and an economic interest in a further 13%—following its tender offer launched earlier this year. That should be enough to give the Italian lender control of its rival’s board and management.
The all-stock offer currently values Commerzbank at around $50 billion, meaning a takeover would rank as Europe’s biggest banking deal since the 2008-9 financial crisis.
The tie-up is the brainchild of UniCredit Chief Executive Andrea Orcel, a former dealmaker best known for matchmaking among the world’s largest financial institutions.
For his own career-defining transaction, the Italian has drawn from his investment banking playbook. UniCredit has used derivatives to quietly build its position and brushed off repeated rejections of the deal from German bankers and officials.
One point of tension in the takeover saga has been the unusually small premium offered by UniCredit in its tender offer.
Commerzbank CEO Bettina Orlopp on Monday said there could still be deal talks, but that UniCredit would at least have to offer a greater premium over its market price.
Germany’s finance agency has also criticized UniCredit’s offer price as too low and said it wants to keep Commerzbank independent. UniCredit has said its earlier swoop on the lender had already driven up its share price, reducing the premium it should offer.
Orcel’s maneuvering to take control has contributed to the sparring between the two banks.
Commerzbank has said the acceptance level of UniCredit’s offer is misleading because it includes stock pledged by financial companies with ties to the Italian bank, rather than its long-term shareholders. It asked Germany’s financial regulator to probe the deals.
UniCredit said tendered shares are tendered shares and that Commerzbank is creating a misleading narrative. It also asked for a probe.
The debate stems from a complicated derivative strategy UniCredit deployed to build its stake. UniCredit entered into so-called total return swaps with banks including Nomura Holdings and Jefferies Financial Group that track Commerzbank stock’s performance, according to people familiar with the matter. Those instruments have allowed UniCredit to increase its exposure to Commerzbank without owning all of the underlying stock.
In the derivatives deals, the banks bought stock to hedge their exposure to the swaps. That stock was then tendered in UniCredit’s offer for Commerzbank, some of the people familiar with the matter said.
In some cases, tendered stock was sold on to hedge funds, the people added. Those funds bought shares at a discount to the offer value so they could profit when the takeover deal completes.