Analysis: Germany talks tough but has limited room to halt UniCredit's advance on Commerzbank

Deutsche Pfandbriefbank AG

24/09/2024 16:13

By Christian Kraemer, Friederike  Heine and Emma-Victoria
Farr
       BERLIN/FRANKFURT, Sept 24 (Reuters) - UniCredit
 CRDI.MI  Chief Executive Andrea Orcel has succeeded in uniting
Germany's political establishment in opposition to his
stakebuilding in Commerzbank  CBKG.DE , the country's second
largest lender.
    The bad news for Germany's angry politicians is that they
have few options to halt the ambitious Orcel, who appears to
have his sights fixed on a transformative deal for the European
banking sector.
    "Legally, there is nothing we can do. But the government's
assessment naturally carries weight," a German government source
told Reuters on Tuesday. 
    Chancellor Olaf Scholz, who leads the Social Democrats, 
slammed Orcel's latest move as "an unfriendly attack" after
UniCredit announced on Monday it had used derivatives to raise
its potential stake in Commerzbank to 21%.
    Friedrich Merz, the Christian Democrat opposition leader
whom many see as Germany's next chancellor, described a
potential takeover as a "disaster for Germany's banking market",
pointing to the precedent of HVB, the smaller Bavarian bank
bought by UniCredit in 2005 and since subject to hefty job cuts.
    With an election due in a year, German politicians are wary
of potential job losses among Commerzbank's 40,000 staff and the
loss of control over a bank that is a key lender to the
"Mittelstand", the country's small and medium-sized businesses.
    
    DEFENCE TACTICS
    Resistance to such a takeover could normally take two forms
- an attempt to rally the shareholder base against UniCredit, or
the use of legal steps to block or delay any deal.
    German government sources noted that banks are regulated by
the European Central Bank (ECB), while laws to protect critical
infrastructure do not readily apply to defending Commerzbank.
    The ECB has long been clamouring for more cross-border
mergers as a way of bolstering the euro zone's banking sector
against global rivals. Portuguese central banker Mario Centeno
said on Tuesday it was now time to see "results" on that front.
    One investor urged Germany to look beyond its narrow
national interest.
    "This is the fundamental question for the German government:
Which God are they going to serve? Are they going to choose
socialist control or the free market?" said Cole Smead, CEO of
Smead Capital Management, which owns UniCredit shares.
    "The longer it takes, the more pressure (there is) on the
German government. Patience is the name of the game. The German
government will effectively have a smaller stake than Orcel,”
once the regulatory hurdles are cleared, he added.
    
    RALLYING THE OPPOSITION
    The German government does have some room for manoeuvre as
an anchor investor, said Christoph Schalast, an M&A lawyer and
professor at the Frankfurt School of Finance & Management,
noting its residual 12% stake.
    "I can hardly imagine UniCredit carrying out a hostile
takeover against the will of Commerzbank's board, shareholders
and employees," said Schalast.
    "The Commerzbank management and supervisory boards must do
their homework in parallel: they must present a strategy at the
next annual general meeting that will be supported by the other
anchor investors. This strategy has to be an economically more
interesting option than a takeover by UniCredit," he added.
    Commerzbank supervisory board members on Tuesday voiced
fierce opposition to a takeover, criticising Orcel and saying
they were prepared for a long fight. 
    For now, the ball is in the court of the ECB which must
assess a request from UniCredit for clearance to increase its
Commerzbank holding to just below the 30% which triggers a
mandatory takeover under German corporate laws.
    "Of course the German government can put pressure on Italy
informally to hinder/stop a deal but otherwise it has little
power to stop Orcel," said a senior M&A banker, who is not part
of the deal.
    However, there is no sign of that, with Italian Foreign
Minister Antonio Tajani on Monday praising UniCredit for its
boldness.
    "UniCredit is a big Italian bank and it is doing well to act
within the internal market," said Tajani, who leads the
pro-business Forza Italia party.

 (Additional reporting by John O'Donnell and Francesco Canepa in
Frankfurt, Stefania Spezzati in London and Maria Martinez in
Berlin; Writing by Keith Weir; Editing by Mark Potter)
 ((Keith.weir@tr.com))