Crédit Agricole

Company Update:
Crédit Agricole made a proposal to merge CA Italia with Banco BPM and combine assets in Italy. By contributing its Italian retail subsidiary, CASA would increase its stake in the new combined entity from 30% to 45%, creating the third largest banking group in the country by assets. Pretax synergies for the combined entity could elevate to €800m a year, leading to a 24% EPS accretion for BPM by 2027.

The transaction implies a 20% premium for Banco BPM’s shareholders and includes the payment of a €1bn dividend to existing shareholders of which around €300m for CASA.

We see the deal’s rationale as strong for CASA as it will allow i) to secure control over Banco BPM without crossing the 30% ownership threshold and making a mandatory takeover bid, ii) to secure its product-factory model in Italy as well as the existing distribution agreements and even reinforce it through more concentration in Northern Italy and iii) to improve capital-efficiency through the deconsolidation of Italian activities, as the new merged entity will remain listed in Milan and have a majority-independent board.

We view CASA’s proposal as the best deal so far compared to the other proposals which brought higher antitrust risk like Unicredit’s takeover bid proposal, or higher execution risk, like Banco BPM-BPMPS tie up.

The proposal will now need to be reviewed by Banco BPM’s board and will then need to be approved by the Italian government which retains its golden power. We believe that the 45% minority stake, the independent board and the retained listing in Milan should do the trick.

Expert Opinion:
This would be a strategically attractive move for Crédit Agricole where the French bank could leverage the enlarged network to distribute asset management, insurance and other financial products. The Italian Banking market is consolidating and it is unclear whether the 20% premium will be enough to convince Italian shareholders (and the Italian government) to leave French influence control what would be the third largest Italian bank.