(Bloomberg) -- Germany effectively called on UniCredit SpA to sell its stake in Commerzbank AG, just hours after the Italian bank said it had increased it, further escalating tensions between the two main shareholders in the German lender.
“UniCredit itself emphasizes that the participation in Commerzbank has so far been a pure investment, which could also be dissolved at any time,” deputy government spokesman Wolfgang Buechner said at a press conference in Berlin on Wednesday. “The German government expects UniCredit to make use of this option.”
Earlier on Wednesday the Milan-based bank under Chief Executive Officer Andrea Orcel announced that it had used derivatives to increase its effective stake in the German bank to 28% from 21%. That pushes it close to the just-under 30% threshold that would trigger a full takeover bid, a step that Orcel has said UniCredit would not be able to take before elections in Germany in February.
The Italian’s pursuit of Commerzbank since September has riled German unions and politicians, with the potential next chancellor, Friedrich Merz, also opposing the deal. Amid strong German pushback, Orcel has also launched a simultaneous bid for Banco BPM SpA, a rival Italian lender, again in the face of resistance.
Commerzbank’s shares were up 2.4% as of 4:00 p.m. in Frankfurt. They’re up about 25% since UniCredit first unveiled a stake in early September.
“The government does not have golden powers to block the deal, unlike Italy, but for UniCredit, the government support seems to be key for the deal to happen,” JPMorgan analyst Delphine Lee wrote in a note on Wednesday. “Considering the comments from key political parties in Germany on UniCredit’s move, it is difficult to envisage how the group could build enough support.”
The use of derivatives enables UniCredit to control voting rights in the German lender without having formal permission from the European Central Bank to exceed a 10% holding. UniCredit has filed an application to increase the stake to as much as 29.9% and decision by the ECB could happen in February at the earliest. The derivatives tactic has, nevertheless, exacerbated the displeasure in Berlin and Frankfurt.
Commerzbank labor representatives on Wednesday lambasted Orcel’s move as “activist and hostile.” A spokesperson for UniCredit declined to comment on the German government’s remarks.
On Nov. 25, Orcel signaled that he wouldn’t be able to start serious discussions about a full takeover of Commerzbank until after a new German government had been formed. He has also, however, said since early on that a sale of the stake is among his options if the deal doesn’t work out.
“You have an election at the end of February, then potentially there will need to be a coalition — that takes time,” he said. “After that is done, you start potentially being able to have discussions.”
The German government portrayed his move Wednesday — which increases implicit control rather than signaling a full bid — as further evidence of Orcel acting in bad faith.
“Today’s news is remarkable because UniCredit had previously publicly emphasized that it did not want to take any further action before the Bundestag elections,” Buechner said. “UniCredit is once again taking uncoordinated and unfriendly action here.”
UniCredit highlighted on Wednesday that its “economic exposure” to Commerzbank “is almost fully hedged,” which means the value of its investment doesn’t fluctuate much even if the German lender’s shares do.
A company’s stock tends to drop if a large investor sells big chunks of it. The sale of UniCredit’s Commerzbank stake would also effectively end its ambition to buy the bank, likely causing some investors who typically buy shares of potential takeover targets, in the expectation that the buyer will improve its offer, to sell as well.
Merz, the German opposition leader and current front-runner to become the next chancellor, has criticized the government for its handling of the Commerzbank stake. He signaled opposition against a takeover as this would potentially jeopardize financing for Germany’s small and mid-sized companies and foreign trade.
Orcel’s latest Commerzbank move “reinforces UniCredit’s view that substantial value exists within Commerzbank that needs to be crystallized,” the Italian bank said in the statement on Wednesday.
The expanded holding also comes while Orcel is angling for an acquisition in his home market by making an unsolicited takeover bid for rival Banco BPM. In that deal, UniCredit is now waiting for the approval from Italian market regulator Consob as well as from the ECB.
Pending approval there, potentially by March, UniCredit has called a shareholder meeting for April 10 to approve the bid. There’s a potential, though unlikely, avenue for disruption in that Banco BPM has already requested Consob to reject UniCredit’s bid on the basis that it is only intended to block its own €1.6 billion takeover offer for asset manager Anima Holding SpA.
The process to get regulatory permission to hold as much as 29.9% in Commerzbank has been “activated,” UniCredit also said. That would allow the bank to convert its derivative holdings into physical shares. Investors need permission from the European Central Bank to take a stake of more than 10% in a bank. The approval process is run together with the national regulator in the state where the target bank is located.
The ECB and Germany’s BaFin have 60 working days from the date of filing to conduct an assessment, although that can be extended by a maximum of 30 days if further information is needed.
--With assistance from Macarena Muñoz, James Cone and Nicholas Comfort.
