At the end of July 2020, Intesa Sanpaolo was able to successfully conclude the largest acquisition in the European banking sector in the last decade according to Bloomberg, with the first talks of an acquisition of UBI Banca starting at the end of February 2020. Despite the opposition of UBI’s management and board of directors, Intesa convinced both regulators and shareholders that the hostile takeover was indeed optimal. The nature of the bid was quite surprising, as the Italian banking sector is not used to hostile bids, preferring instead agreed mergers and acquisitions. The deal of roughly €4.9 billion will create the largest bank in Italy, the third largest European bank by market capitalization, and the seventh largest by assets under management.

Deal Timeline

The initial version of the deal entailed an all-share payment, granting 1.7 Intesa Sanpaolo shares for one UBI share; however, UBI’s board unanimously rejected the offer, considering it unacceptable. Subsequently, to defend itself from Intesa’s unwanted attentions, UBI Banca started looking for another bank to acquire. The potential target for this defensive acquisition would have been Banca Monte dei Paschi di Siena (MPS), which however was not available for talks at the time.

After UBI’s Board refusal, Intesa Sanpaolo pursued a hostile takeover, giving the decisional powers to UBI’s shareholders. Although the deal timing was delayed by the outbreak of the COVID-19 pandemic, Intesa managed to get the regulators’ approval to move forward with the public offer, allowing UBI investors to sell one share for 1.7 Intesa shares from the 6th of July to the 28th of July. The end-date of the public offer was later pushed to the 30th of July by Consob, the Italian stock market regulator. On the 17th of July, Intesa’s board added a €0.57 per share sweetener to the deal, for a maximum amount of €652 million if all shares were to be bought. The deal represented a roughly 28% premium on 14th of February closing prices.

With a target of minimum 66.6% required for full control, the Turin Group pushed more than enough to secure the acquisition. Furthermore, having later reached an ownership of 95% of UBI’s shares, Intesa was able to exercise the right to purchase the remaining shares and “squeeze out” the remaining investors. Finally, as a last step of the hostile takeover, shares of UBI have been delisted on the 5th of October 2020, marking the official beginning of the consolidation process.

Intesa Sanpaolo

Intesa Sanpaolo was created on January 1, 2007, through the merger of two leading Italian banking groups, Banca Intesa and Sanpaolo IMI. The Intesa Sanpaolo Group is the leading banking group in Italy, with more than 14 million customers and approximately 5,360 branches. It is one of the main banking groups in Europe with a market capitalization of roughly €34.8bn.

Intesa Sanpaolo has a national and global nature operating from 25 countries worldwide. The group is also among the top players in several countries in Central Eastern Europe, the Middle East, and North Africa, demonstrating a strategic international position.

Intesa San Paolo operates mainly through six divisions: domestic commercial banking, IMI Corporate & Investment Banking, International Subsidiary Banks, Private Banking, Asset Management, and Insurance division. This allows the group to have a wide variety of clients, ranging from corporations to financial institutions and public finance customers.

Sources: Bloomberg on the 25th January 2021

Over the years Intesa San Paolo has grown significantly, both from a structural and economic standpoint. Despite the crisis that is affecting the whole world, Intesa Sanpaolo ended the first nine months of 2020 with a consolidated net income of €6,376m, which includes the UBI Group’s bimonthly contribution and the related negative goodwill effect. Net of these contributions, the caption amounts to 3,073 million euro, down by 7.2% compared to the same figure of €3,310m recorded in the same period of previous year. The decline is mainly driven by an increase in adjustments to loans and a decrease in revenues, attributable to the COVID-19 pandemic; furthermore, the resilience of revenues and containment of costs confirm the Group’s solidity and the continuity of its positive performances according to Intesa Sanpaolo.  As mentioned above, the negative goodwill of 3,264 million euro is temporary and will be revise at the time of preparation of the 2020 financial statements following the outcome of the PPA (Purchase Price Allocation) procedure through the exact calculation, as at the date of acquisition, of the fair value of identifiable assets acquired and liabilities assumed of the UBI Group. Another interesting data to pay attention to is its operating income, which tell us the level earnings that a bank generates before any taxes are paid. From 2019 to 2020 this figure, net of UBI Banca, fell by 3.2%, reaching €13,158m in September 2020.

UBI Banca

UBI Banca was created on April 1, 2007, through the merger of Banche Popolari Unite (BPU) and Banca Lombarda e Piemontese. It is the fourth largest bank in Italy by number of branches, with 1,598 mainly concentrated in the wealthiest areas of the country.

UBI operates mainly on a national level with a focus on the Northern part of Italy. The Group has a large retail component but also maintains a traditional presence in the sector of small and medium enterpries and a private banking activity that places the Group among the top players in the Italian market. The Group also has an international network made up of foreign banks and branches, representative offices and product companies.

As showed above, UBI Banca was in line with market valuations, with some parameters below the average and others above. As of September 30, 2020, UBI Banca had a price-to-tangible book value of 0.53, compared to the average 0.35. An important measure for banks is the Tier 1 Capital Ratio, which measures how much of the bank’s capital is equity capital and disclosed reserves. In other words, this indicator shows how much buffer there is in the bank to resist during a crisis. While UBI is below average, it is still well above the ECB requirement of roughly 10%. On the other hand, looking at the net interest margin UBI was performing well as of September, profiting more than the average on the spread between loans and deposits. Finally, we can see how UBI was facing turbulent times, with an extremely high Efficiency Ratio and very low Return on Equity.

UBI Banca performed with great resilience in the first half of 2020 even in an economic scenario strongly impacted by Covid-19, with an operating income of €575 million by the end of September 2020. It is evident that Intesa Sanpaolo did not buy UBI for merely its financial ratios and performance in the past year, as they acquired it at a premium of almost €1 billion. However, Intesa will gain roughly €3 billion in accounting profit from UBI’s negative goodwill thanks to the new ECB regulations.  

Potential Synergies

The Intesa Sanpaolo Group will consolidate its leadership in the Italian market and achieve synergies of over 700 million euros according to Bank of America, while the Group believes that this merger will produce pre-tax synergies of €730m. This is the result of a gain of €510m in terms of lower costs and 220 million euros in new revenues. In 2019, Ubi had €2.5 billion in operating costs, which Intesa will try to cut by 25% through a reduction in personnel (5 thousand planned voluntary redundancies).

The Takeover bid made by Intesa Sanpaolo on the capital of UBI is good news not only for the Turin group, which expects this operation to increase profitability, but also for the Italian banking system, which is making a significant progress towards greater consolidation.

To gain the approval of the Italian Competition Authority (AGCM), Intesa also agreed to sell 532 of the combined group’s branches to BPER and is ready to sell an additional 17 UBI branches if necessary.

Intesa plans to spend an additional gross €1.3 billion euros before tax to achieve a full integration, which will be covered thanks to the purchase price well below UBI’s book value, corresponding to €3.4 billion when including also the BPER agreement. Furthermore, the Turin Group will sell €4 billion in impaired debts and use another gross €1.8 billion to raise UBI’s loan loss provisions.

Intesa Sanpaolo has a proven experience in the integration of companies having successfully carried out many M&A operations. It has recently successfully integrated Veneto Banca and this gives analysts confidence that it can achieve its purpose.

UBI is the fourth largest Italian bank with a 5% share in the loan market, 4% in deposits, 3% in asset management and 4% in insurance. This acquisition, therefore, allows Intesa Sanpaolo to consolidate its leadership in Italy (its market share would rise to 21% in the loans and deposits segment, 23% in asset management and 19% in life insurance).  For all these reasons, UBI bank is a strategic target for Intesa Sanpaolo, which, through this transaction, will consolidate its national presence and attempt an international expansion, thus becoming Europe’s second largest banking group by market cap.

With more than 100,000 employees, a loan book of roughly €450 billion, and more than €1.1 trillion in financial assets entrusted by customers, the newly formed Group will achieve an operating income of €21 billion. When asked about the Group’s short- and medium-term prospects, CEO Carlo Messina has made clear that the focus will be on the exploitation of synergies and creation of value. Indeed, the larger size that will be achieved after full consolidation can ensure the creation of more opportunities in the growing Eastern Europe. Looking at the average estimates for future PE ratios, which go from the current 5.84 to the 10.31 for fiscal year 2021, the Group’s shareholders may be looking at an appreciation of the share price in the foreseeable future. Furthermore, as Intesa Sanpaolo becomes a more prominent European bank, it might be valued with the relatively higher multiples typical of the European banking sector.


It is crucial for the Italian banking sector to consolidate and create larger banks that can compete both on a European and international market. As mentioned before, Italian banks are undervalued on a price to book basis, which raised concerns among analysts of possible takeovers from foreign counterparts. For instance, banks such as Banca Nazionale del Lavoro (BNL) and Cariparma have been acquired respectively by BNP Paribas in 2006 and Credit Agricole in 2007. One of the reasons for which the Italian government was in favor of the deal, was exactly to keep one of the major Italian banks within its own banking sector.

Interestingly, in the recent period after Intesa’s acquisition, there have been several rumors of other possible takeovers among other banks. Banco Popolare di Milano (BPM) and Banco Popolare Emilia Romagna (BPER) have been in talks for a probable merger between equals, which has already received approvals from analysts from both Banco Santander and Intesa Sanpaolo. Thanks to BCE regulations, which have recently started allowing banks to utilize negative goodwill to cover integration costs, BPM and BPER could potentially exploit the estimated €1.8 billion in badwill to offset integration cost and an estimated 15% of impaired debts. Furthermore, although much more uncertain, there have been also talks about UniCredit acquiring Monte dei Paschi di Siena (MPS).

Looking at the entire European banking sector, it is also facing an increasing threat from the growing fintech industry, requiring them to innovate and invest large amount of capital. European banks in general are also smaller by market cap and less profitable than they American and Chinese counterparts. Market capitalization of Western European banks was 2% of world capitalization, compared to 36% for the US and 25% for China, while average profits are 7.2% for Western Europe and 10% for both China and US.

According to the Financial Times, the European Banking sector is ready and ripe for a series of mergers. As a matter of fact, the European Central Bank itself has pushed for national and cross-national consolidation by allowing banks to recognise badwill as an accounting gain. Indeed, Intesa’s CEO Carlo Messina has declared that this incentive was one of the reasons for which the Group acted and acquired UBI Banca. Although the number of deals in Europe’s banking sector has been steadily declining since the 2007/2008 financial crisis, in 2020 there has been a surge in average deal size, with Intesa being at the top of the list.

Source: Financial Times

Until today, deals have been mostly done within the national borders, as European countries have always lagged in financial integration. However, experts anticipate that the pandemic might have given the industry an additional reason to look for cross-borders integration, as there are many good deals that large groups are interested in.

Finally, the Italian banking industry is ready for radical changes in structure, and perhaps the pandemic has only accelerated the process. Through consolidation the industry will certainly be able to face in a more decisive manner the threats coming from both international peer and fintech disruptors. In the coming years, we will likely see more deals being struck not only between banks in the same country, but especially between European banks from different nations, pushed also by the European vision of integration. The Covid-19 pandemic has shown the world that although being globalized is advantageous, having strong local systems is key for resilience and growth. The European Union has received this message loud and clear, and between the Brexit’s effects and the pandemic, building large and competitive banks will be a priority in the Union. The exit of the UK from the EU will have, and is already having, deep structural changes to the banking sector, which heavily relied on the UK for financial services. However, together with the effects of the pandemic, we view this as an incredible opportunity to build a strong and independent financial system capable to compete globally.

Finally, with Intesa Sanpaolo’s acquisition of UBI, an era of consolidation may have begun in the European financial sector, with many players in talks for possible deals. From UniCredit and MPS, to CaixaBank acquiring Bankia, and Unicaja’s bid for Liberbank, the European banking system is finally growing and maturing.

1 Comment

  1. Marshall

    Intesa Sanpaolo’s €4.9 billion raid on UBI Banca could inspire similar deals, but it’s an eminently Italian takeover, not least due to the role of Alberto Nagel’s Mediobanca.


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