Monte dei Paschi di Siena (MPS), the world's oldest bank, has become the target of a hostile merger and acquisition (M&A) 554 years after its founding.
According to major outlets on the 2nd (local time), Intesa Sanpaolo, Italy's largest bank, is pushing ahead with a €35 billion (about 58 trillion won) acquisition without an agreement with the MPS board. In response to Intesa Sanpaolo's hostile bid, MPS is even considering bulking up first by buying another bank before it gets swallowed. Experts said a bank that survived medieval wars, the Black Death, and the rise and fall of the House of Medici is now entangled in a battle of European financial protectionism seeking to keep control of its domestic "money spigot."
The takeover battle began in June. Mid-sized Italian bank Banco BPM on June 7 proposed a "merger of equals" to MPS. The very next day after the news broke, Intesa, with far greater financial firepower than Banco BPM, hijacked the process by announcing a €30.6 billion (about 50 trillion won) cash-and-stock tender offer without consulting the MPS board. A hostile takeover refers to a method of proposing directly to shareholders to sell equity without reaching agreement with the target company's management. Intesa said it would pay for MPS not in cash but with a set number of its own shares.
MPS, which opened in 1472 in Siena in central Italy, is the world's longest-running bank still in existence. It has withstood the boom and bust of the House of Medici, fierce regional wars, and two world wars to grow into a bank representing central Italy today. Its current asset is about €240 billion (about 396 trillion won).
But over the past decade, MPS suffered the most humiliating 10 years in banking history as a major derivatives scandal overlapped with bad loans. In 2017, it ultimately received €5.4 billion (about 8.9 trillion won) in a government bailout, and in return for handing over equity, the government's stake at one point rose to about 64%. The turnaround began in 2022. Chief Executive Officer Luigi Lovaglio, who took office at the government's request, completed a €2.5 billion (about 4.1 trillion won) capital increase and restructuring, reducing the government's stake to below 5%. The share price has jumped more than 475% since Lovaglio became CEO. Last year, it acquired investment bank Mediobanca, which is larger than itself, in reverse fashion, and even secured equity in Generali, Italy's largest insurer. Bloomberg reported that as the once-troubled MPS revived, Intesa targeted an acquisition to seize these prime asset.
The asset Intesa is after is not the 554-year-old brand or branch network. Intesa said that if it succeeds with the hostile takeover, it will take over Mediobanca's investment banking and asset management businesses recently acquired by MPS, as well as the equity in Generali. Intesa CEO Carlo Messina told investors in June that securing Mediobanca would transform Intesa into "the Italian UBS," spanning asset management, investment banking, and insurance. In return, half of the general bank branch network held by MPS will be transferred to Unipol, the largest non-life insurer in Italy based in Bologna. In the process, the regional name "Siena" is expected to disappear from the bank's trade name, Monte dei Paschi di Siena. Lovaglio told the New York Times (NYT), "How can you make a proposal to break up the world's oldest bank, in the middle of its recovery?"
MPS's defensive move against Intesa's hostile takeover is to bulk up. MPS sought to create Italy's third major bank to counter Intesa and UniCredit by pursuing a merger of equals with No. 3 bank Banco BPM. But Crédit Agricole of France, BPM's largest shareholder (29.3% equity), put on the brakes, saying, "It is hard to know whether combining MPS and Banco BPM benefits BPM shareholders." The merger-of-equals talks between the two banks were suspended as of the 31st of last month. The Financial Times (FT) reported on the 3rd that CEO Lovaglio is going a step further and considering acquiring BPM outright. A share-swap structure is being discussed, in which the BPM equity held by Crédit Agricole would be exchanged for shares of the expanded financial group to be launched after the merger, but this too would be difficult to achieve unless Crédit Agricole agrees.
Internal dynamics are complex as well. For MPS to push a large defensive transaction to block the hostile takeover, it must first obtain approval from an extraordinary shareholders meeting under Italy's capital market "passivity rule." But at least four MPS directors oppose combining with Banco BPM, whose largest shareholder is French capital. They argued that although France is also an EU country, if that capital is mixed into MPS, it would dilute their identity that has been rooted in the local community for more than 500 years.
Residents of Siena also see this takeover battle not as a simple merger of local financial institutions but as a question of identity. For centuries, MPS has been Siena's largest employer and a funding lifeline for local small and midsize businesses. The MPS bank foundation supports the expansion of Siena's hospitals, welfare, culture and arts, and even the world-famous traditional horse race festival "Palio." In Siena, not only the mayor but also the Archdiocese of Siena is taking the lead in opposing the takeover. The Archdiocese of Siena issued an open letter last month saying it "will monitor the negotiation process." Claudio Marignani, a former MPS employee who leads a civic group, told the NYT, "MPS is not just a bank; it is Siena's history, culture, and economy itself," adding, "There is deep fear about job cuts and preserving Siena's identity."
The European Union (EU) and the European Central Bank (ECB) have argued that to build a large European financial group to counter JPMorgan Chase or Goldman Sachs in the United States, more cross-border bank mergers are needed. But in reality, the opposite is happening, as in this case. Earlier, when Italy's UniCredit pursued an acquisition of Germany's Commerzbank AG, the German government and labor groups pushed back, saying they had to protect the funding pipeline of domestic corporations. The conflict escalated into a diplomatic spat between the Italian and German governments.
This time, France's Crédit Agricole has received the key to Italy's banking reshuffle. Crédit Agricole Chief Financial Officer Clotilde L'Angevin told Bloomberg, "The decision may not be ours," adding, "But nothing can be done without us, and nothing can be done against us." Since the launch of the EU, the euro and the financial supervisory framework have been unified, but when it comes to banks that control household deposits and corporate lending, countries still are reluctant to let go.