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UniCredit to acquire Capitalia

The Italian bank UniCredit agreed on Sunday to buy a rival, Capitalia, for 21.8 billion euros (US$29.5 billion) in an all-stock deal that would create Europe's second-biggest bank behind HSBC Holdings.

The merger will also strengthen the position of Italian lenders as consolidation in Europe's banking industry gathers pace.

The takeover will help UniCredit, Italy's biggest bank, expand at home, where it is facing heightened competition since last year, when Banca Intesa bought Sanpaolo IMI to create Italy's biggest branch network.

Matteo Arpe, Capitalia's chief executive, resigned on Sunday, bowing to pressure from its chairman, Cesare Geronzi, who will be deputy chairman of the new bank and the head of its executive committee.

The two men had fallen out earlier this year over diverging opinions about the bank's merger strategy.

European banks are trying to position themselves to profit from an increasingly integrated market in the EU and in the 13 countries that use the euro.

ABN Amro, the largest Dutch bank, is currently the target of the biggest takeover battle in the financial services industry, which has pitted Barclays PLC against a consortium led by the Royal Bank of Scotland PLC.

The takeover by UniCredit, which is based in Milan, will keep Capitalia, which is based in Rome and is the country's third-largest bank, from falling into foreign hands. It will also create a large Italian bank to compete in Europe with rivals like BNP Paribas, the French bank that has been buying into Italy.

Italy has attracted the attention of foreign buyers because its banks are among the most profitable in Europe. The Italian loan market expanded last year at an annual rate of 11 percent and consumer credit advanced at an annual rate of 18 percent.

UniCredit agreed to pay 1.12 of its own shares for each of Capitalia's and said it would issue new shares to pay for the deal. The price represents a premium of 23.5 percent over Capitalia's closing share price on May 8, the day before rumors about a combination started to circulate, the two banks said on Sunday.

Through acquisitions, Alessandro Profumo, UniCredit's chief executive, has turned the bank into one of the fastest-growing in Europe. He has spent more than US$25 billion in the past two years to expand in Germany, Austria and Russia, including the US$21 billion purchase of the HVB Group of Germany a year and a half ago.

"Whenever mergers are in the air, you either seize opportunities or you miss out," Profumo said at a news conference in Rome on Sunday. "We realized that there were the right conditions in place to seize the opportunity."

Profumo has repeatedly said he believes in a truly unified European banking system and would like to be at the forefront of its creation.

He introduced English as a common language at the bank's headquarters and changed the final letters of employees' e-mail addresses to .eu, from .it, to illustrate that he sees UniCredit as being European as much as Italian.

The pace of deals involving Italian banks has increased since Antonio Fazio, who opposed foreign bank takeovers, resigned as governor of the Bank of Italy in December 2005.

But Italy has recently taken some steps to protect its companies from foreign buyers. The government last year opposed a foreign takeover of Autostrade, an Italian highway operator, and encouraged investors to team up to keep Telecom Italia, the telephone company, in Italian hands.

Geronzi said on Sunday that Capitalia had held takeover talks with several other banks in the past, including Banca Intesa and ABN Amro, one of its shareholders, but that he always saw a deal with UniCredit as "the one deal that would protect our banking system."

The combined bank will have a 16 percent market share in Italy, where it will have 5,000 branches. It will have 9,200 bank branches globally and 40 million customers.
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